The G7 group of major global economies announced over the weekend that it had reached an agreement to levy a 15% minimum tax on multinational corporations, bringing the Biden administration one step closer to achieving one of its key tax goals.
It signaled the start of a potentially historic measure and signaled support from key allies for a deal that would crack down on tax havens – and work in tandem with the Biden administration’s tax-increase proposals.
The agreement includes two planks that, if implemented, would raise taxes on large corporations. The first is an agreement to tax major corporations wherever they operate, rather than just where they are headquartered. This would subject large technology companies such as Amazon and Facebook to new taxes in European countries.
The other is a 15% minimum corporate tax rate, which is intended to set a floor so that firms cannot relocate operations to a country with a lower tax rate, pitting major economies against each other.
Republicans, however, are unlikely to support the bill, arguing that it would reduce the country’s economic competitiveness abroad and cede a level of tax decision-making to foreign countries. On Monday, Sen. Pat Toomey slammed it as a “terrible agreement.”
“Why would we want to commit to doubling our global minimum tax, that’s a very bad policy,” Toomey, the Senate Banking Committee’s ranking Republican, told Insider. He claimed that the Biden administration pushed other countries to agree to lower their business taxes in order to keep the US competitive.
“The fact that they had to go around trying to persuade all these other countries to raise their taxes is a confession of the damage we’re doing to our own country,” Toomey said of the Biden administration.
Yellen has emerged as a vocal supporter of the tax, having advocated for it since taking office – she called for the new levy in her first major address as Treasury Secretary. She stated that it would ensure that “the global economy thrives on a more level playing field in multinational corporation taxation, and spurs innovation, growth, and prosperity.”
The tax complements domestic proposals to raise corporate rates in the United States.
Even the prospect of a new minimum tax rate as part of a deal sparked early Republican opposition. “I don’t think that will appeal to members of my party, and I think it will be difficult to sell to Democrats,” Senate Minority Leader Mitch McConnell said Thursday in Kentucky. Republicans have been vehemently opposed to any tax increase. The chief Republican negotiator, West Virginia Sen. Shelley Moore Capito, has long described a corporate tax increase as a “non-negotiable red line.”
While a global minimum tax appears to be a promising entry in what is shaping up to be a hot tax summer, it still has a long way to go before it becomes law. The G7 proposal is a strong endorsement, but the measure will now go to the G20. It would then be forwarded to an OECD-led group in charge of taxation.
If that group came to an agreement on a framework, the measure would almost certainly have to be enacted through legislation. That is where Republicans could step in and sink it.