Biden sells G-7 on global tax, but U.S. Congress is a hurdle

President Joe Biden may have convinced some of the world’s largest economies to raise taxes on businesses, but Congress could be a far tougher sale.

The leaders of the Group of Seven – which also includes the UK, France, Canada, Germany, Italy and Japan – agree with Biden to impose a minimum global tax of at least 15% on large corporations. The G-7 leaders began a three-day summit in England on Friday after their finance ministers approved the global tax minimum earlier this month.

A minimum tax is designed to stop an international race to the bottom in corporate taxation that has led multinational corporations to book their profits in countries with low tax rates. This enables them to avoid taxes and encourages countries to lower tax rates. The minimum rate would make it harder for companies to avoid taxes and could potentially replace a digital services tax that many European nations impose on US tech companies that pay at low rates.

Biden government officials believe that the use of foreign tax havens has deterred companies from investing domestically, costing the middle class. The president hopes that G-7 advocacy can serve as a stepping stone to gain acceptance by the larger group of 20 nations.

The agreement is not a closed agreement as the terms should be agreed by and implemented by the countries of the Organization for Economic Co-operation and Development. The president needs other countries to support a global minimum tax to ensure his own plans for a higher tax in the US don’t harm American businesses.

“It has the potential to stop the race to the bottom,” said Thornton Matheson, senior fellow at the Tax Policy Center. “It would be a big change in the way things have gone in corporate taxes over the past three decades.”

The idea of ​​an increased global minimum tax is also an integral part of Biden’s domestic agenda, but it is met with opposition in Congress.

The president has proposed using a global minimum tax to fund his comprehensive infrastructure plan. His budget proposal estimates it could raise nearly $ 534 billion over 10 years, but Republicans say the tax law changes would make the United States less competitive in a global economy.

Treasury Secretary Janet Yellen formulated the agreement after the Treasury Ministers’ meeting as fundamental fairness.

“We need stable tax systems that generate sufficient income to invest in essential public goods and respond to crises and ensure that all citizens and businesses share the burden of public finance fairly,” she said.

Texas MP Kevin Brady, top Republican on the House Ways and Means Committee, said GOP lawmakers would fight the tax “tooth and nail”. Republicans see lower taxes as an incentive for businesses to invest and hire, and give little value to Biden’s argument that improved infrastructure and better educated workers would drive more growth.

“It’s an economic surrender,” Brady said on Friday. “President Biden did the impossible – he did better being a foreign company and a foreign worker than an American company and an American worker.”

Senate Republican chairman Mitch McConnell of Kentucky has repeatedly said his party will oppose any measures that reverse the 2017 tax cuts signed by President Donald Trump.

The 2017 revision created a new way to tax foreign profits of companies on what is known as “global intangible low-taxed income”. The Democrats in Congress said the framework encourages companies to invest abroad rather than domestically.

Biden has proposed increasing this rate to 21%, along with other changes to the Code. The administration regards the 15% of the G-7 as a lower limit rather than an upper limit for tariffs. However, the G-7’s plan deviates from what Biden has proposed and details have yet to be finalized, with tax experts pointing out that there appear to be gaps in the rates and treatment of assets such as buildings and equipment.

Democrats want to grapple with the fine print of any deal before fully agreeing to what comes out of the G-7, which means Biden must continue selling to US voters and their representatives.

The chairman of the Senate Finance Committee, Ron Wyden of Oregon, advocates the general idea of ​​a global minimum tax. But Wyden said in a statement with House Ways and Means Committee chair Richard Neal of Massachusetts that they will have to look at the deal to see if Americans would really benefit from it.

“We are optimistic that a strong multilateral agreement can be reached to harmonize our international tax rules, end the race to the bottom and put an end to taxes on digital services,” said the two democratic lawmakers. “We look forward to working with the government to evaluate the results of these negotiations for American workers, businesses and taxpayers.”

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