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Yellen’s Global Tax Railroad – WSJ

Treasury Secretary Janet Yellen



Amid media fretting about Democratic disarray in Congress, don’t underestimate the party’s determination to ram something into law. Consider the Biden Administration’s plan to force tax increases through a skeptical Congress by exploiting global tax negotiations.

Treasury Secretary

Janet Yellen

this summer sidestepped a long bipartisan consensus to sign up the U.S. for a radical overhaul of corporate tax rules. Negotiated at the Organization for Economic Cooperation and Development, the agreement would revamp how tax jurisdiction is set for the world’s largest companies (mainly American tech firms), and also introduce a 15% minimum global tax rate.

The U.S. had already introduced a form of minimum tax in the 2017 Tax Cuts and Jobs Act. Known as the global intangible low-tax income (Gilti) tax, this currently has an effective rate of about 13%. But the Biden Administration wants to increase it to 21%, along with raising the overall corporate tax rate to 26.5% from 21% as the House Democratic bill proposes.

Oh, and the Administration also wants to change how companies calculate their tax liabilities—which is where the mischief gets worse. The tax plan Mr. Biden unveiled last spring would require country-by-country reporting, under which companies would have to calculate profits and tax payments in each foreign jurisdiction separately.

Combined with other elements of Gilti, this would become nightmarishly complex and amount to a significant tax increase on the sly. That’s why the 2017 tax reform calculates Gilti on a global basis—and why lawmakers have been cool to Mr. Biden’s country-by-country plan.

Now Ms. Yellen thinks she’s found a way to railroad Congress. A sticking point in the OECD talks had been whether other countries would treat America’s Gilti as equivalent to the global minimum tax even though the fine print is different. Without this equivalent treatment, U.S. companies could be subject to double taxation.

The latest OECD deal offers to treat Gilti as equivalent, but it specifies in the same paragraph that the OECD’s minimum tax is designed to be applied “on a jurisdictional basis.” Translation: The global minimum tax will be calculated country-by-country, and Congress had better fall into line if it wants America’s Gilti tax to count.

The goal appears to be to put Congress in a bind. If the global OECD pact goes ahead and Congress doesn’t adopt the Administration’s country-by-country rule, it will subject American companies to ruinously high taxation abroad. This prospect is supposed to overcome qualms lawmakers have about whether the Biden plan is good policy on the tax merits.

By agreeing to this language at the OECD, Ms. Yellen is helping other governments hold Congress hostage until Ms. Yellen extracts the Gilti changes she wants lawmakers to pass. This railroad job is reason enough for Congress to kill the global deal in its entirety.

What’s behind the high price of everything–and what will be the political cost?

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