The Treasury’s aggressive agenda will unnecessarily undermine US competitiveness overseas
Washington, DC – The Biden administration is using negotiations at the Organization for Economic Co-operation and Development (OECD) to force Congress to aggressively amend U.S. tax law that undermines Congress’s authority, senior Republican tax clerks warn. Senate Finance Committee member Mike Crapo, R-Idaho, and House Ways and Means Ranking member Kevin Brady, R-Texas, sent a letter to their Democratic counterparts expressing serious concerns the approach of the Biden government in international tax negotiations described at the OECD.
In the letter, the members wrote:
“Shortly after an agreement was negotiated at the OECD, Treasury Secretary Yellen admitted that Congress would have to make significant changes to national tax law in order to comply with the agreement. While previous governments have taken the position that the Treasury Department cannot bind Congress, this administration has taken the approach of using the global stage to try to enforce the hand of Congress.
“This worrying development suggests that the government has shown our global partners that it can unilaterally enforce changes in tax law, which is a serious violation of the authority of Congress.”
The US Treasury Department recently admitted that significant changes in US tax law would have to be made to the US Global Minimum Tax (GILTI) in order to comply with the OECD agreement negotiated by the Treasury Department. Despite the fact that the United States remains the only country with a global minimum tax, the government is using the OECD process to push for aggressive changes to GILTI – before another country acts. Forcing Congress to take specific legislative action undermines Congressional tax sovereignty and would ultimately make American companies less competitive globally.
Crapo and Brady have pointed out time and again that the government should not negotiate with the OECD on an agreement that targets American companies or makes them less competitive, which ultimately leads to less jobs, growth, and US investment.
The full text of the letter can be found here and below.
Chairman Wyden and Chairman Neal,
We are writing to share our concerns with the government’s strategy to enforce specific action by Congress regarding US tax law, a matter that clearly falls under the responsibility of the Senate Finance Committee and the House of Representatives Committee on Ways and Means. We urge you to join us in protecting the powers of Congress to determine US tax policy by this or any other government.
Shortly after negotiations on an agreement with the Organization for Economic Co-operation and Development (OECD), Finance Minister Yellen admitted that Congress would have to make significant changes to national tax law in order to comply with the agreement. While previous governments have taken the position that the Treasury Department cannot bind Congress, this administration has taken the approach of using the global stage to try to enforce the hand of Congress. This worrying development suggests that the government has shown our global partners that it can unilaterally enforce changes in tax law, which is a serious violation of the authority of Congress.
Previous negotiations at the OECD were based on the principle that the US global minimum tax would be treated as compliant with the global minimum tax introduced by an OECD deal. This approach recognized our status as a pioneer in a global minimum tax and protected American workers and businesses without the need for additional legislative action. But the Treasury Department has reversed its course and is now pursuing an agreement with the OECD that severely penalizes American companies unless significant changes are made to US law.
It also appears that Treasury Department negotiators committed in April to “abolish” the US Intangible Income Provision (FDII). FDII was designed to achieve the bipartisan goal of encouraging American corporations to develop and hold intangible property in the United States. Although the Treasury Department does not have the power to repeal laws passed by Congress, the agency appears to have committed to do so, according to an OECD report released on August 5, 2021.
The Treasury’s approach to these negotiations makes it clear that the government has replaced its own political priorities – presented in its revenue proposals for fiscal year 2022 – with the bipartisan, bicameral goals that have historically been pursued at the OECD. Democrats and Republicans alike have denounced digital service taxes (DSTs), which discriminate against American workers and businesses and drain US tax revenues. Every agreement with the OECD should abolish summer time and similar measures. The Treasury Department has yet to ensure this key condition, however, and instead hopes that flexibility will facilitate an agreement that will advance the government’s broader tax agenda.
Rather than moving forward unilaterally on its own priorities, the Treasury Department should hold meaningful, bipartisan consultation with both sides of Congress. As Foreign Minister Yellen has admitted, certain elements of the agreement must be implemented through a multilateral treaty, which must be ratified by the Senate and which requires substantial bipartisan consensus. By pursuing the government’s tax agenda at the OECD and assuming that Congress will use the reconciliation to enact certain changes, the government is putting the future success and durability of the deal at risk. If the current government can unilaterally enforce tax changes in line with its priorities, future administrations will have the option to unilaterally dissolve them, which will ultimately result in no international tax security.
While we disagree with the policies promoted by the Biden government, the government’s strategy raises far more fundamental questions about the authority of Congress and our tax committees. Please consider the precedent that would result if Congress yielded to government efforts to undermine the authority of Congress and our committees in setting US tax policy.