Wall Street Journal Op-Ed: Biden and the OECD’s Taxation Without Representation, by David Schizer (Columbia):
The Declaration of Independence complained that Britain was “imposing Taxes on us without our Consent,” and Americans rallied around the idea of “no taxation without representation.” They wanted to be taxed by officials they elected, not by a faraway government that wasn’t accountable to them.
The Biden administration has lost sight of this tradition, empowering another unaccountable entity from across the ocean—a Paris-based nongovernmental organization called the Organization for Economic Cooperation and Development—to dictate aspects of U.S. tax law. Treasury Secretary Janet Yellen has worked with the OECD to forge an agreement known as “Pillar 2,” which requires all countries to tax large multinational corporations at a rate of at least 15%. More than 130 countries joined this agreement in October 2021. When it starts to take effect in 2024, Pillar 2 is supposed to prevent a “race to the bottom,” in which countries compete for investment by cutting corporate taxes.
Congress has pushed back, however, refusing to enact a Pillar 2 minimum tax. (Congress actually did enact a 15% minimum tax, but it doesn’t satisfy the OECD’s criteria.)
While the Pillar 2 framework purports to be voluntary—allowing countries to decide whether to adopt its minimum tax—there is a steep price for saying no. If a country hasn’t enacted this tax by the end of this year, other countries can step in to collect (and keep) this tax starting next year. …
[U]nder Pillar 2, the tax burden on U.S. multinationals will be set not by Congress but by other countries under the auspices of the OECD. This isn’t the way taxes are supposed to be imposed. Under our Constitution, only Congress has “the power to lay and collect taxes”—not the president and certainly not an NGO.
If you think the global minimum tax is a good idea, consider if it’s really a good idea to establish a precedent for the executive branch to pressure and circumvent Congress through such a deal with an international organization. In effect, the Pillar 2 agreement says that if Congress won’t increase U.S. taxes, other countries can step in to do it. This tactic could be used by either political party. If President Biden loses the 2024 election, a Republican administration could use it to undercut legislation the Biden administration holds dear: the hundreds of billions of dollars in clean-energy tax credits enacted last summer.
Washington Post, Biden Won a Global Tax Rate. Now Americans Wonder If It Was a Good Deal.:
When President Biden led the way almost two years ago in brokering a worldwide deal to set a minimum corporate tax rate, it looked like a triumph abroad. Now, as the world comes closer to actually collecting the taxes the United States advocated, it’s starting to seem like chaos here at home.
American companies may face dizzyingly complex tax bills from countries around the world, while Republicans in Congress fight against the plan that their own country championed.
“This is a lose-lose deal negotiated by the Biden administration,” Sen. Mike Crapo (R-Ind.), the top Republican on the tax-focused Finance Committee, said in a recent statement. “The Biden administration handed each foreign country a model vacuum to suck away tens of billions from our tax base.” …
Congress’s inaction along with the structure of the agreement itself could bring many consequences: The largest American companies might find their already complicated tax returns will become far more complex. Corporate tax revenue paid to the United States might shrink, as American companies pay more to other countries. And in a strange new maneuver, foreign countries might even tax American companies to penalize them for not paying their fair share of taxes to the IRS.
“If I were a U.S. business, I’d rather pay one minimum tax that’s sensible and aligned with what the rest of the world is doing than pay three or four,” said UCLA law professor Kimberly Clausing, who was formerly the Biden administration’s lead economist in the Office of Tax Policy. …
The Joint Committee on Taxation added fuel to the fire last month with an analysis, requested by congressional Republicans, that predicted that the United States would see a $122 billion decline in tax revenue over the next decade if the rest of the world enacts legislation complying with the agreement while the United States does not. On the other hand, if the U.S. adopts a law while more countries refuse, the Joint Committee predicted a $236.5 billion boost in American tax revenue. …
Does reducing offshoring help or hurt the United States’s bottom line? On the one hand: If U.S. companies pay more tax abroad, they get a larger credit for the foreign taxes they’ve paid, thereby reducing their U.S. tax bill. On the other hand, some economists say the business that stays in the United States instead of leaving the country in search of lower tax rates will eventually more than make up the difference.
“I think it just defies logic to say it’s better for the U.S. tax base to have everybody racing to zero. It’s definitely not true,” Clausing said.
The global minimum tax is the second plank or “pillar” of the 2021 agreement.
“The effects of Pillar 2 will almost certainly involve more profits shifting back to the U.S., potentially bringing lots of revenue with it,” said Fordham University law professor Rebecca Kysar, a former Treasury official who helped lead the negotiations that crafted the deal. …
At the request of The Post, Columbia Business School professor Shivaram Rajgopal came up with a list of companies that could theoretically face a punitive tax bill from another country on their American income. To make the list, a company must meet three criteria: annual revenue above about $800 million, subsidiaries outside the United States, and an effective tax rate below 15 percent.
Rajgopal found about 100 companies that are large enough and pay low enough taxes that they could be subject to a foreign tax on their American income, including well-known names like Netflix, Boeing, Warner Bros. Discovery, Pfizer, Royal Caribbean Cruises, Keurig, Dr. Pepper and General Electric. …
Clausing, the former Biden official, says some American corporations intended to oppose new taxes and ended up getting more complicated taxes. “They lobbied against the U.S. adoption of the agreement, thinking it would sink it everywhere,” she said.
Instead, the rest of the world is moving ahead with implementing the deal.
https://taxprof.typepad.com/taxprof_blog/2023/07/schizer-biden-and-the-oecds-taxation-without-representation.html