Following decades of international debate over how to rewrite the taxation of multinational businesses, nearly 140 countries, including the Biden administration, agreed to an outline for a new global tax system. Since then, the proposal has been met with criticism and skepticism from Congressional Republicans and other critics who argue that it will harm American taxpayers and infringe on U.S. sovereignty. Most recently, ten House Republicans proposed stripping U.S. funding for the Organisation for Economic Co-operation and Development (OECD), the international organization facilitating the reforms.

The proposal includes two “pillars” which build on decades of past work carried out by the OECD. The first pillar includes a new system for allocating the right to tax certain types of corporate income between countries based on where consumers are instead of where businesses are located. The second pillar consists of a series of new rules that enforce a global minimum tax of 15 percent. Pillar Two is currently being adopted by countries across the EU, among others. Pillar One is less developed due to ongoing disagreements over dividing taxing rights.

The OECD’s work is often reported as a technocratic solution to increase efficient and fair tax collection. However, the OECD is better thought of as an aspiring international cartel of revenue-maximizing tax collectors intent on one thing: higher taxes. The last decade or more of OECD work rests on the false premise that international taxation in the digital economy deprives countries of tax revenue. Instead, while corporate tax rates have been cut in half, corporate tax revenue has increased.

Tax Rates Down, Revenue Up

The OECD aims to remake the international corporate tax system in response to what it terms base erosion and profit shifting (BEPS) by multinational businesses. The reforms are based on the premise that tax competition between countries has resulted in a “race to the bottom” that will “ultimately drive applicable tax rates on certain mobile sources of income to zero for all countries, whether or not this was the tax policy a country wished to pursue.” The OECD overstates this dynamic, but tax competition for global businesses and talent is a beneficial feature of free trade and free movement. It often leads to more business investment and employment, and better overall economic policies by constraining the government’s ability to pursue policies that would drive people and businesses from their borders.

So, has the dreaded race to the bottom resulted in starving governments of corporate tax revenue? Data from the OECD shows that tax revenue has trended up, not down, over time. Figure 1 shows that corporate tax revenue as a share of the economy has increased from 2.4 percent in 1981 to 3.5 percent in 2021 across 22 OECD countries for which we have consistent data. Similarly, corporate tax revenue as a share of all revenue has also trended up since the 1980s.

The solid corporate tax receipts during this period are even more impressive given that the average corporate income tax rate across the same OECD countries was cut in half, falling from about 48 percent in the early-1980s to 24 percent in 2021. Tax competition has not yet eroded tax revenue in the United States or across the OECD. As my colleague Chris Edwards points out, this is an excellent example of the Laffer Curve at work—rates are down, but revenues are up. Lower rates allow business investment to expand and decrease the benefit of costly tax planning schemes to avoid the tax in the first place. Together with base-broadening in some countries, lower rates have resulted in higher corporate revenue.

Congress Should Reassert its Authority and Defund the OECD

The OECD was established in 1961 to promote global economic growth. Its early days focused on the worthy goals of increasing free trade and ensuring international businesses are not subject to multiple taxations of the same income. In more recent years, the OECD has promoted a very different agenda that aims to increase taxes on large international employers and other anti-market initiatives. President Biden’s administration has used the OECD to circumvent Congress to raise taxes on American businesses.

The OECD’s tax work has shifted from primarily working to coordinate tax systems to eliminate double taxation to proposing ever more complicated new tax systems and reporting requirements in the last few decades. In a 2012 article, Andrew Morriss and Lotta Moberg characterize the OECD’s campaign against tax competition as the organization’s effort to form an international tax cartel run by a special interest group of tax collectors. Recent events make Morriss and Moberg’s argument quite prescient—the OECD’s Two-Pillar proposal would allow the organization to not only decide the global tax rate but also redistribute taxing rights to new countries. This agenda threatens to reverse countries’ progress in pro-growth business tax reforms.

The Biden Administration has used the OECD as an extra-legislative venue to advance policies that do not have congressional buy-in. By working with the OECD to develop their Two-Pillar approach and agreeing to the proposed outline for the new rules, the Administration has effectively sidelined Congress in an effort to upend decades of international tax norms. The Two-Pillar proposal opens American businesses up to new and higher taxes and approves new forms of extra-territorial taxation that could violate U.S. sovereignty.

Ten House Republicans recently asked the Appropriations Committee to prohibit any U.S. funding for the OECD in next year’s budget. They explain that the “OECD has evolved into a venue that advocates against the economic interests of United States’ workers and business.” These members are right to want to exercise the congressional purse strings to reign in an organization that the President is using to circumvent Congress on critical issues of business taxation. As I wrote back in 2018, the U.S. should either cut OECD funding entirely or, at a minimum, withhold funding until it returns to the original mission of economic growth and commits to doing an “equal amount of research on ways to cut government spending, reduce taxation, and make bureaucracies smaller and more efficient,” instead of their current focus on the opposite agenda.

Rather than rushing to adopt the OECD plans, Congress should reclaim its rightful role in developing tax policies for U.S. businesses. Congress should credibly commit to rejecting the OECD Two-Pillar proposal, withdraw U.S. funding for the OECD, and pursue pro-growth tax and spending reforms to attract multinational companies to invest in the United States.