Biden’s Minimum Foreign Tax a Tougher Sell in Congress After G-7
U.S. President Joe Biden (Photographer: Samuel Corum/Bloomberg)

Biden’s Minimum Foreign Tax a Tougher Sell in Congress After G-7

Treasury Secretary Janet Yellen’s weekend deal with G-7 counterparts on a framework for a global minimum corporate tax has made for a tougher sales job for President Joe Biden’s proposed changes to U.S. tax law.

The G-7 committed to seek a global minimum corporate tax rate of “at least 15%.” That leaves a potential gap with the 21% rate that Biden has pitched to Congress for U.S. companies’ profits logged abroad. Any discrepancy could mean American firms effectively paying a surtax on profits in some nations.

“It’s very difficult, and maybe impossible, to call for 15% for an international standard and somehow convince lawmakers on Capitol Hill on 21%,” said Rohit Kumar, a principal at PwC’s Washington National Tax Services. “I would not want to be the person to convince Congress -- that is a beyond heroic task.”

Biden’s tax plans also include a domestic corporate rate of 28%, up from 21% today. All three elements of the levies on businesses face strong opposition from Republican lawmakers, and even Democratic members have cautioned against any rush to legislate, pending a final global deal on a new corporate minimum rate.

The G-7 pact is just a prelude to talks with the broader Group of 20 in coming months, let alone the ultimate agreement -- in negotiations under the leadership of the Organization for Economic Cooperation and Development -- among about 140 nations that will be needed.

Don’t ‘Volunteer’

“I think the timing on it is going to be important because I would like some sort of harmony with what OECD is going to do,” House Ways and Means Chairman Richard Neal said in an interview before the G-7 deal was announced. “I don’t think we should volunteer something and then they lower their rate or something like that.”

The corporate tax increases -- including a proposed 15% “book” tax that would serve as a minimum rate on U.S. firms that have lots of tax credits and deductions -- are envisioned to help pay for Biden’s infrastructure-focused American Jobs Plan.

The international element is particularly thorny because of the G-7-backed plan to rewrite the rules for taxing corporate profits based on where they earn their money, rather than where they are headquartered. That would require updating tax treaties, which require a two-thirds vote in the Senate.

Senator Mike Crapo and Representative Kevin Brady, the top Republicans on the congressional tax-writing committees, are already mobilizing their members to oppose a deal, and framing it as an issue they could talk about during an upcoming campaign.

“We continue to caution against moving forward in a way that could adversely affect U.S. businesses, and ultimately harm American workers and jobs at a critical time in our country’s economic recovery,” the pair said in a statement.

Louisiana Representative Steve Scalise, the second-ranking House Republican, called the G-7 deal “part of a flawed $3.5 trillion tax hike that will crush American jobs and embolden China and Russia, who would cheat if they even agreed to go along with this radical proposal.”

The status quo isn’t appealing to some companies, however, given moves by France and dozens of other countries to impose new levies on digital profits. Those steps have been characterized by Washington as singling out American tech champions like Google and Amazon.com Inc. Averting the tech levies has widespread bipartisan support in Congress -- but the proposal to do that has been more controversial, even among Democrats.

Neal and Senate Finance Committee Chairman Ron Wyden prior to the June 4-5 London finance ministers’ and central bank governors’ meeting had lauded the G-7 efforts to reach consensus. But Democrats have been far from united with the administration on its corporate tax proposals.

Some moderate Democrats have warned about the proposed 21% rate on foreign profits leaving American firms at a disadvantage. Meantime, Representative Lloyd Doggett, a progressive Democrat and member of the House Ways and Means Committee, has cautioned that a 15% global minimum is too low.

Timeline Presses

Lawmakers will face a time-crunch as they look to pass Biden’s broader tax agenda and $4 trillion of proposed spending measures.

There’s an effective political deadline to pass any legislation by the end of this year, to give lawmakers time between passing a tax hike and the November 2022 mid-term election. If Congress fails to pass legislation before the mid-terms and Republicans win a majority in either the House or the Senate, the GOP would be unlikely to pass a minimum tax.

Meantime, OECD tax negotiations are likely to come to a head this fall. A final deal is expected to be announced at a Group of 20 meeting in October, though it will likely take years for countries to pass legislation implementing the deal.

Neal said he is in close touch with Yellen on the timing issue and that it would be handled “ever so carefully.”

Even if there is a global agreement that could pass muster in Congress, that might not end the global tensions.

“The impulse to generate more revenue on the backs of American tech companies is not going to go away if there is some sort of multilateral deal that’s struck,” said Andrew Moylan, executive vice president of the National Taxpayers Union Foundation, a right-leaning think tank.

Still, companies may be better off with a global deal, he said.

“They’re really in between a rock and a hard place, because the worst-case scenario is an array of unilateral tax efforts across different markets, different countries, that makes it extraordinarily difficult for a company to operate and try to maintain compliance,” Moylan said.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.