Coase-Sandor Institute for Law & Economics Research Paper Series

Publication Date

2025

Publication Title

Coase-Sandor Working Paper Series in Law and Economics

Abstract

The OECD has spent the last fifteen years working on the design and implementation of rules for the taxation of the income derived from international transactions, rules that its members hope will both increase corporate tax revenues and minimize “destructive” tax competition. In 2021, it released its two-part “Inclusive Framework.” Although Pillar One of this Framework still languishes, legislation necessary for the implementation of Pillar Two, which is designed to force all countries to impose a minimum tax on income derived by large multinational enterprises, has been enacted by most of the countries in the European Union, Japan, South Korea and other economically important countries. At present, though, the U.S. has refused to enact such legislation, and President Trump recently announced his opposition to participating in the entire endeavor. This article explains why the U.S should go forward with Pillar Two, but for reasons that are at odds with the general approbation of Pillar Two by tax academics and international authorities. It argues that, while Pillar Two will undoubtedly be somewhat disruptive, it is largely a “paper tiger.” Instead of reducing overall tax or economic competition, it will slightly change the form that competition takes, while increasing tax revenues by far less that its supporters expect. Nor is there any reason to expect that the increased revenues will be spent on the social programs its proponents hope will benefit from them. In short, adoption of Pillar Two will not stand in the way of the President’s and Congress’ pursuit of their nationalist economic and political agenda. Given the limited effectiveness of Pillar Two and its extreme political salience abroad, the U.S. may well be better off acceding to it than setting itself up as its opponent.

Number

25-07

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