House Republicans are set to repudiate U.S. Treasury Secretary Janet Yellen for telling other countries that the U.S. is on board with a global tax initiative aimed at punishing global corporations.
All 25 Republicans on the House Ways and Means Committee have co-authored the Defending American Jobs and Investment Act (H.R. 3665), which would impose retaliatory taxes on countries that impose harsh taxes on American companies. This bill doesn’t come out of nowhere, however. It’s a direct response to Yellen telling global leaders that the U.S. would like to take part in the global tax – one that would benefit European companies and punish American ones.
The first pillar lets other countries impose special taxes on multinational tech companies. The second pillar allows a country such as France or Germany to impose a “top-up” tax on an American company if the U.S. firm’s effective global tax rate falls below 15%. We’ve warned from the start that Ms. Yellen’s participation in this tax circus is bad policy, bad law and bad diplomacy—and now here we are.
The policy ploy was that the Biden Administration could use a global tax increase to blunt the competitive deadweight of its proposed corporate tax increases on U.S. companies. But the OECD resisted setting the minimum tax rate anywhere near the level the Administration sought for the U.S.
European and other negotiators also outfoxed Ms. Yellen by securing favorable treatment for tax credits preferred in Europe while punishing the sort of credits and deductions that Congress traditionally offers U.S. companies. The result is a global tax regime that, if implemented, would make the U.S. even less competitive rather than more so.
European nations are already beginning to implement the tax, and the Biden administration really wants to jump on that bandwagon. Switzerland is the latest to begin to transition to the global corporate minimum of 15 percent.
Switzerland plans to implement a 15% corporate tax on global multinationals entirely through their economically most relevant units. https://t.co/WbrXXD7gAj— Bloomberg Tax (@tax) June 4, 2023
The plan is foolish and is coming at a time when the economy is still headed south. New taxes on companies means higher prices for Americans, something most families can ill-afford right now. Inflation is still high, but a recession is looming and Americans will have to make even tougher choices in the coming year in response. Agreeing to a global corporate tax with all of that on the horizon is not only foolish, it’s a direct assault on the lower and middle class – classes the Biden administration swore they were out to protect.
Based on last week’s jobs report, which showed a strong jobs market but also indicated a lot more Americans are working second jobs and are barely making ends meet, that should be a sign that we need to ease financial burdens on Americans, not increase them. Yet, that’s what this tax would do.
But more than that, this is yet another completely unconstitutional move by the Biden administration, and Janet Yellen should absolutely know better. The power to levy taxes is reserved for the House of Representatives, and agreeing to this without bringing it before the House is unconscionable. What’s more, we have existing agreements on taxes through various treaties. To make changes to those agreements would have to go through the Senate to be constitutional, but the Treasury Department has already signaled it is looking at statutory ways of getting around this.
The Republican bill to counter all this may pass the House, but it’s likely dead on arrival in the Senate, much less something Joe Biden would sign into law, but it is a shot across the bow, as the Wall Street Journal editorial board noted this morning. It signals to the rest of the world that the U.S. is not on board and that any attempts to punish American companies will be met with stiff resistance – especially if Republicans regain control of the White House in 2024.