When it comes to economic policy, President Joe Biden has said “everyone must play by the same rules.” Accordingly, global agreements should not require the United States to move first, while our foreign competitors sit back and watch.
Unfortunately, the Biden administration is proposing to do just that in its pursuit of a global minimum tax agreement where American workers, their employers and our economy stand to lose the most. The administration’s strategy would have the United States running out on a limb with our biggest foreign competitors preparing to saw it off, waiting to see how far U.S. businesses and jobs will fall.
When tax negotiations began five years ago at the Organisation for Economic Co-operation and Development, a global minimum tax was not part of the picture. At that time, the United States’ key bipartisan objective was to eliminate digital services taxes while preserving Congress’ sovereignty over U.S. tax policy. DSTs, like those currently imposed by the United Kingdom and France, target American tech companies by imposing discriminatory double taxation on their gross receipts. Countries have increasingly levied DSTs on American companies, even though the United States initially suspended retaliatory tariffs against those same countries to show good faith in negotiations. Continued collection of DSTs, and the E.U.’s promise to impose a new digital levy, suggest we should be increasingly wary of whether foreign countries will be willing to stand down on unilateral measures like DSTs.
The idea of a global minimum tax wasn’t introduced into OECD negotiations until 2019 and, despite recent headlines, it didn’t originate with the Biden administration. Rather, it was Republicans’ 2017 tax reform law that introduced a robust global minimum tax on U.S. multinationals — a significant tax increase that reduced the incentive for U.S. companies to shift profits overseas. The United States was then, and continues to be, the only country with a global minimum tax. As a result, when the idea of a global minimum tax was introduced at the OECD, the United States was supportive but unfazed. After all, the United States already had such a tax. It was the rest of the world that needed to catch up.
That all changed when the Biden administration entered the negotiations and the previously bipartisan OECD agenda turned political. The administration realized its proposed $2 trillion of tax increases on American businesses could severely harm their ability to compete if foreign countries didn’t similarly increase taxes on their own businesses. As a result, longstanding bipartisan objectives took a backseat to the Biden administration’s tax agenda. The administration shifted its focus to the global minimum tax already under consideration and proposed an increase to 21 percent, in line with the administration’s domestic proposals. When it became clear other countries would not sign on, the administration settled on a 15 percent floor.
However, recent headlines have left out a key fact: American companies are already subject to a global minimum tax (GILTI) and data suggests they’re already paying 16 percent on those foreign earnings — above the rate under the administration’s OECD proposal.
In other words, the United States is already out on the limb and the administration’s newest proposal would hand our foreign competitors, like China, the saw. Biden’s proposals would increase taxes on U.S. businesses far higher than our foreign competitors, including an effective global minimum tax rate of at least 26 percent, while other countries currently impose no minimum tax — i.e., 0 percent — on their companies. This is in addition to Biden’s proposed hike in the headline corporate rate, which would push the combined rate to more than 32 percent — the highest in the OECD. The magnitude of proposed increases is staggering. Over 10 years, Biden’s proposals would increase corporate income taxes nearly seven times more than the net corporate tax reductions in Republicans’ 2017 tax reform law.
What’s worse, the administration wants Congress to dramatically increase taxes now, long before our biggest foreign competitors even enact a global minimum tax, introducing a significant first-mover disadvantage. Details of the deal are still sparse, and given that some nations have expressed concerns about the global minimum tax, it’s unclear whether countries will receive carve-outs to accommodate their own tax policies. Even willing countries likely won’t take legislative action for at least two years. The E.U. doesn’t expect to begin negotiations until sometime next year, at the earliest, on legislation that would likely need unanimous agreement to pass. In other words, even with the high-level agreement reached this month, it will take years for foreign countries to enact a global minimum tax, if they ever do.
I have long supported the goal of reaching a global tax agreement at the OECD, through both Republican and Democratic administrations. DSTs must be eliminated — not just delayed — and countries need consensus to address tax issues arising from the digital economy. But the administration’s domestic agenda threatens to undermine important, historically bipartisan objectives.
Ultimately, I am concerned the administration has lost sight of the importance of American businesses’ ability to compete against our foreign adversaries. This issue is front-of-mind in the Senate, where we recently passed bipartisan legislation to ensure our semiconductor sector and other critical technologies can compete against China. If U.S. businesses are globally uncompetitive, the result will be fewer American jobs, reduced wages for workers and stifled investment in the United States.
At the very least, the administration should wait for our foreign competitors to implement tax increases on their own businesses before telling Congress to impose trillions of tax increases on our job creators. Otherwise, the United States will be left out on a limb, waiting for countries like China to choose when it’s most advantageous for them to saw it off, leaving American businesses and workers behind.
Sen. Mike Crapo (R-Idaho) is the ranking member on the Senate Finance Committee.
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