International Policy Digest: How Manchin’s Tax Stitch-Up Could Put America Behind China in the Race for 5G

The myopic move for a book minimum tax aims to squeeze more taxes out of big corporations in the short term, at the expense of the long-term interests of American businesses, consumers, and even the government.

Published by International Policy Digest

With the endorsement of West Virginia Sen. Joe Manchin on several key provisions, the behemoth Build Back Better Act grows stronger. On tax, Manchin has given his sign-off for a 15 percent minimum ‘book’ tax on corporations. We do not yet have many details about how exactly that will work, but President Biden nonetheless claims that it will raise $313 billion over the course of the next decade.

This myopic move aims to squeeze more taxes out of big corporations in the short term, at the expense of the long-term interests of American businesses, consumers, and even the government. At this point, the U.S. government might as well issue a press release telling global telecom companies that it no longer cares about 5G and that they should take their technology and investment capital elsewhere.

There are plenty of reasons to avoid inflating corporation taxes to begin with. By making it clear that America is a hostile tax and regulatory environment where the IRS is out to get you for every penny it can, companies and investors are dissuaded from keeping their cash on American soil. That is especially true when it comes to emerging sectors such as the cutting edge of telecommunication technologies, where other countries around the world are clamoring to win the attention of the global giants. For America to be competitive, it must avoid shooting itself in the foot unprovoked.

In the case of 5G, the way the Build Back Better Act’s tax provisions are crafted is designed in such a way that it seems to single out those investing in 5G technology for particular punishment. This seems to be an unintended consequence, but it is possible it is motivated by a pernicious and ill-informed desire to punish big corporations for making too much profit during a difficult time for the world economy. Either way, the Act’s provisions are set to place a much higher burden on wireless spectrum investments.

Manchin argues that the provisions under scrutiny do not raise taxes but that instead, all he wants to do is “close the loopholes and collect the taxes that are owed to the Treasury and the [American] people.” In fact, Manchin’s idea of ‘closing loopholes’ involves constricting investment by significantly upping the tax burden placed on companies investing in 5G.

This problem is fundamental to the way this new tax provision operates. The ‘loophole’ it aims to close involves imposing a 15 percent tax on the ‘book income’ of larger corporations – that is, the income they report to investors via financial statements – as opposed to taxable income. Thanks to the way the governing of spectrum licenses – a key component of investment in 5G infrastructure – works, that will disproportionately hit wireless companies who are trying to build out broadband capabilities across the U.S. by affecting the deductions they can make. While America polices 5G investment harshly, China subsidizes it.

It is relatively clear why this is happening. In the midst of an economic crisis in which the cost of living is climbing at an alarming pace for millions of Americans, politicians like Manchin are keen to be seen taking a hard line on economic issues, especially when it comes to giant corporations making even more giant profits.

The problem is that this approach focuses more on virtue signalling than enacting policy solutions which will make a difference for working- and middle-class Americans who are struggling. The new book minimum tax will only dissuade investment, undermine America’s place in the 5G race and make Americans worse off in terms of both tax revenue and access to new technologies in the longer term, all without relieving any of the pressure on working people’s wallets during this difficult time.

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