If You Like the IRS, You’ll Love the Global Minimum Tax

Imagine if California and other left-wing states conspired to require every state to impose high taxes. States attracting companies with low tax rates make it harder for other states to increase taxes and spending. Under the conspiracy, if, say, Florida, refused to comply, the other states would tax companies on their income earned in Florida to make up the difference. Fortunately, the Supreme Court would strike down such a scheme because the U.S. Constitution forbids a state to tax income earned elsewhere.

But foreign governments and the Organization for Economic Cooperation and Development are working to enact exactly such a regime to increase taxes around the world to fund the left’s priorities. If Congress doesn’t comply, other countries would punish the U.S. by taxing American companies on income earned in the U.S. to make up the difference.

The Biden administration is encouraging other countries to adopt the global tax code and to tax American companies in violation of our existing treaties. Congress agreed to include in the Orwellian Inflation Reduction Act only a tiny fraction of President Biden’s proposed tax increases on Americans—and so Treasury is asking other countries to do so instead.

The global tax code isn’t one tax but a web of several complicated regimes that would increase taxes and also effectively transfer some American tax revenue to other countries. It isn’t clear how these different taxes are supposed to interact or which country has the right to tax which income under which tax regime. In theory, only one country would have the right to tax any specific income but, inevitably, many countries will claim the right to tax the same income. The only practical way to administer and enforce a global tax code is with a global revenue service with the power to make binding rules.

Republican lawmakers have assailed the Biden administration for negotiating a bad deal and trampling on U.S. sovereignty. They haven’t said what they would do if other countries unilaterally implement the global tax code against American companies. Ms. Yellen and OECD officials say that Republicans will have no choice but to go along. “To the extent that the Republican side is going to be looking to business and trying to protect business interests, my guess is that businesses are going to be saying to members of Congress, ‘Please approve this,’ ” Ms. Yellen said.

If Congress refuses to capitulate, foreign countries would use the Global Tax Code to tax American companies on income that could instead be taxed by the U.S. Therefore, many tax specialists say the U.S. should surrender rather than leave tax revenue on the table for other countries.

Tax experts are studying the nuances of the new regimes to see whether details can be improved, but many have lost sight of the forest for the trees. The overriding consideration should be sovereignty and the Constitution. Should we protect the Constitution, under which only Congress has the power to tax (subject to the president’s veto), or should we give foreign governments and bureaucrats the power to tax the American people on income earned in the U.S. on the grounds that America’s taxes are too low?

From a pragmatic standpoint, capitulating to other countries violating our tax treaties may bring tax peace for a short time, but will soon lead them to violate the new deal in order to seize more taxes from Americans and the U.S. Treasury.

Foreign countries, many of which have lower business taxes than the U.S., are free to increase their own taxes. But we shouldn’t let them increase America’s taxes if Congress won’t.

Americans generally dislike our Internal Revenue Code and Internal Revenue Service, but imagine a new global revenue code and global revenue service. There is no global supreme court to prevent foreign countries from taxing American companies in violation of our treaties. Congress and the next president should reject the global tax code and fight back with all available economic and diplomatic means against countries taxing Americans under the scheme.

Mr. Friedman was senior tax counsel for the House Ways and Means Committee (2007-20) and senior adviser to the assistant Treasury secretary for tax policy (2020-21).