Janet Yellen Is Serious, and That’s Really Sad

– April 9, 2021 Reading Time: 4 minutes

What’s the most common “people” sight in any public place, anywhere? At this point in our evolution the answer is easy: hunched over individuals tapping away on smartphones.

It doesn’t matter one bit if the locale is rich or poor. The gadgets are everywhere.

The other day at the library your writer spied a homeless man, surrounded by presumably all of his worldly possessions. Those possessions included a smartphone. He had it hooked up to a power source outside the library’s main entrance.

Please think about this for a minute or two. A homeless American man was charging a communications device that wasn’t available in capability and speed to the richest of the rich probably even five years ago. Certainly not ten.

It’s a reminder that what the rich enjoy exclusively is always and everywhere a preview of what we’ll all eventually enjoy if markets remain free, and wealth largely stays where it’s created: in the private sector.

About wealth more broadly, its creation is largely a consequence of entrepreneurs mass producing the former baubles of the rich. Those who wring their hands about inequality unwittingly expose themselves as doltish, and heartless too. In truth, a soaring wealth gap is the surest sign of a shrinking lifestyle gap. See the homeless man at the library in 2021 America.

Which brings us to Janet Yellen, President Biden’s Treasury secretary. Without anything remotely resembling a smirk, or a wink, Yellen called for politicians around the world to band together on corporate taxes. She seeks equality when it comes to tax rates. In Yellen’s words, “Together, we can use a global minimum tax to make sure the global economy thrives based on a level playing field in the taxation of multinational corporations.” Yellen was serious.

Where do we begin?

Up front, Yellen’s implicit acknowledgement is that members of the American right were correct all along. Businesses are people, and people respond to tax rates. If they become too onerous, people migrate away from them. It turns out people are mobile, which means corporations are.

Yellen wants to ensnare corporations. This explains her call to allegedly avoid a “race to the bottom” whereby corporations take their wealth and talent to the tax situations that most protect the wealth of their shareholders. In other words, if non-U.S. countries would just stop competing with the U.S. by lowering their corporate tax rates, Yellen et al wouldn’t have to fear U.S. companies exiting the U.S. Yes, Yellen aims to trap U.S. businesses.

It speaks to how simplistic and mean-spirited is her seriously expressed view about taxation. Yellen wants the U.S. Treasury to own more of the profits of U.S. companies, but she doesn’t want to have to compete. Better if other countries pursue tax mediocrity of the U.S. kind. If other countries are not dynamic, and aren’t forward thinking in their approach to taxes, then the U.S. won’t have to be.

To be elear, dynamic and correct when it comes to corporate taxation is a zero tax rate. To understand why, never forget that corporations as taxpaying entities are a fiction. Shareholders pay taxes. By definition. They have shares because they saved a portion of their after-tax income. Which means a corporate tax amounts to double taxation of individual earnings.

Yellen wants more of U.S. corporate profits, but doesn’t want to work for them. More specifically, Yellen plainly feels individual U.S. tax rates aren’t high enough, so she seeks global tax harmonization on the corporate level in order to get another swipe at individuals. On their own, Yellen’s desires rate ridicule. As evidenced by the trillions Treasury collects every year from taxpayers in order to fund a government with powers “few and defined,” Americans are already overtaxed.

Yellen might respond that the citizens of other countries pay more, but then those countries aren’t governed by a Constitution explicitly written to limit government. Furthermore, why would we want to emulate the others? They want to be us. That’s why people continue to risk their lives to get to the United States, and it’s why people in heavily taxed countries have been migrating to the U.S. for centuries.

But wait, Yellen’s boss in President Biden has things he’d like to do with the trillions Yellen aims to vacuum in by equalizing global tax rates. About this, just once it would be nice if a senator or congressmen were to ask Yellen what amazing things government does with the wealth it extracts. It would also be nice if they asked her why people want “money” in the first place. Odds are she doesn’t know. Odds are she would stutter. Which is the point.

This explains why this piece began with the smartphone example. Enterpreneurs with expansive minds and who were matched with capital have made it so that the poorest of poor Americans have supercomputers among their meager possessions. Entrepreneurs have made smartphones near universally accessible.

It’s all a reminder of what Yellen would stutter about simply because she doesn’t know. People want money for what it can be exchanged for, and it’s increasingly true that very little money can be exchanged for staggering value. See the ubiquity of smartphones yet again.

All of which speaks to the abject foolishness behind Yellen’s plea to other countries to join the U.S. in overtaxing corporations. She’s calling for the confiscation of the very wealth that is relentlessly pushed to higher uses in order to create more and more once-out-of-reach goods for the masses. The U.S.’s poorest have smartphones today, so what will it be tomorrow?

That’s the unknown question. The only thing the mildly sapient know is that if Yellen gets her way, tomorrow won’t be as abundant as it should be. It won’t be because Yellen believes her boss and his lieutenants in Congress are better at allocating resources than the world’s greatest companies. That’s really sad.

Reprinted from RealClearMarkets