As discussed in my previous Atlantic piece, the GOP plan was rumored to use only a 10 percent minimum tax, and to make it worse, would make the minimum tax determination based on the average of a company’s total global profits. What was problematic about this design was that it not only encouraged companies to move profits to tax havens, but it actually encouraged them to simultaneously move jobs and operations such as manufacturing to industrialized countries that had typical tax rates and to shift more profits to tax havens. Why? Because if you had $100 million of profits in Bermuda facing no tax, you might have still had to pay $10 million in U.S. taxes to meet the new global minimum tax. But if you moved a factory to Germany that made $100 million and paid 20 percent in taxes there, you could still pay zero on your profits in Bermuda because the average taxes paid on your global profits (from both Bermuda and Germany) would be the global minimum rate of 10 percent. This perverse design means the more a U.S. multinational shifts jobs and operations to industrialized nations with similar tax rates to the U.S., the more it can get away with shifting more and more profits to tax havens.

So how did it look in the fine print? As several tax experts including the Tax Policy Center’s Steve Rosenthal, Brooklyn Law School’s Rebecca Kysar, and Reed College’s Kimberly Clausing have written, it is even worse than anticipated on at least two additional grounds. First, it turns out that the Republican idea of a minimum tax is that it only taxes what you make over what they think is a “routine” profit, deemed to be 10 percent in the Senate bill, on “tangible” investments (think factories and equipment, including for manufacturing). As Rosenthal notes, “because ‘routine’ returns are not subject to U.S. tax, this definition of ‘routine’ returns could give U.S. firms a perverse incentive to shift more tangible assets to lower-taxed overseas locations.” That means, under the GOP bills, if you shift less profitable operations to a tax haven you would pay zero taxes on those operations as long as you are only making 10 percent a year—whether that is $10 million or $100 million—while you would pay 20 percent if the operations were located in the United States. So, the “minimum” tax is really a much lower rate than 10 percent, and would essentially be an invisible, non-existent tax except on highly profitable operations and income from intangibles.

Second, this limitation to only excess profits encourages even more shifting of operations and jobs overseas through complex efforts to blend different income streams. How? Profits from “intangibles” like patents do not receive the 10 percent exemption for “routine” returns, so the minimum tax is seemingly designed to at least capture those well-known cases where major technology companies shift intangibles to low-tax nations and book their profits there. If a company does that and earns extraordinary profits, a global minimum tax would capture some piece of that. But again, here is where the GOP bill’s global “averaging” actually creates the incentives to move jobs and operations overseas.