Well over two years in, the Biden administration clearly is failing to represent US economic interests on the global stage. And perhaps the best example is how it’s handling the international tax negotiations at the OECD.
Over the course of Biden’s time in office, this administration has enacted billions of dollars of new taxes on American businesses and has proposed trillions more. At the Organization for Economic Cooperation and Development, the administration found common cause with their international counterparts, all agreeing on higher taxes for American companies.
Instead of advocating on behalf of American economic interests, however, the administration joined the pile-on and readily accepted lopsided terms that disadvantage our US businesses and workers. In their crusade to hike taxes by any means necessary, they recruited the assistance of global competitors against American employers.
Unfortunately, in their blind quest to make sure that American job creators pay more, the administration has shown complete indifference to where the additional tax should be paid. The OECD deal disproportionately affects the US. Our share of global gross domestic product is 24%, while US companies represent 40% of the income exposed to higher taxes.
The Treasury Department would allow foreign governments to determine whether US businesses are paying enough domestic tax. The OECD’s so-called undertaxed profits rule gives foreign countries new authority to tax multinational companies, even if a country has no connection to the profits being taxed. This sets up a system where foreign governments can claw back critical US tax incentives and siphon off US tax dollars.
For example, the US research and development tax credit is exposed to the UTPR, providing an avenue for foreign governments to tap into the US Treasury and discourage innovation here at home. The Biden administration would allow other countries to protect their own tax incentives from being snatched away in a similar manner—the UTPR uniquely targets Americans.
The Trump administration participated in the OECD negotiations to protect US workers and employers from discriminatory taxes at a time when digital services taxes were gaining momentum around the world. DSTs were crafted with the stated purpose of taxing America’s enormously successful internet companies; the Trump administration sought to prevent them and create fair rules for taxation in the digital age.
But the Biden administration had something else in mind. As Biden’s negotiators shifted attention to creating new discriminatory taxes such as the UTPR, DSTs proliferated and remain in effect. At each step, the administration neglected to consult with Congress. The resulting negotiations have led to punitive new taxes on US workers and companies, as well as promises to our global counterparts on a deal that Congress will never pass.
Americans lose, and their foreign competitors win, under the failed handling of these critically important negotiations. Domestic businesses, jobs, and our economy suffer as a result of the lopsided terms of the deal—and our global counterparts suffer by having been misled into believing they had America’s buy-in.
Having negotiated the OECD deal against American interests, the administration says Congress simply should raise taxes on American businesses and undercut our tax incentives. But Congress’s hand won’t be forced.
If it already hasn’t been made clear to our global counterparts, there is absolutely no path to implementation for Pillar Two in the US Congress. Further, countries that do implement the discriminatory UTPR could be subject to retaliatory tax countermeasures, outlined in the Defending American Jobs and Investment Act that every Republican on the Ways and Means Committee proposed in May.
If foreign countries implement the new tax, tax rates on US income of wealthy investors and corporations in those countries will increase by five percentage points each year for four years, after which the tax rates will remain elevated by 20 percentage points while the unfair taxes are in effect. The Biden administration might not be willing to stand up for American jobs, but Republicans in Congress certainly will.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Randy Feenstra (R-Iowa) represents the state’s Fourth Congressional District in the US House of Representatives. He serves on the House Ways and Means Committee and the House Agriculture Committee.
Ron Estes (R-Kan.) worked in aerospace, energy, and manufacturing before representing Kansas’ Fourth District. A former state treasurer, he serves on the House Ways and Means, Budget, and Education and the Workforce committees.
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