Can a global tax deal survive a political engagement in the United States?


Joe Biden celebrated last week later 130 countries have accepted to make significant changes to the international tax system, reaching a consensus following new proposals from US discussions that seemed to have reached a stalemate.

But the momentum that had picked up pace since Biden took office threatens to be lost in Washington, where any fiscal deal must secure support in the Senate, where Democrats have control by the narrowest of margins.

Will the new tax agreement be passed as a single law?

It is highly unlikely. Any eventual OECD agreement will likely be dealt with by legislators on Capitol Hill in two separate parts. The agreement on a global minimum tax of 15 percent, known as Pillar 2, will force lawmakers to change national tax legislation.

Giving countries new rights to tax large businesses based on where they generate revenue, the so-called Pillar 1, is likely to be treated as a separate bill, because it alters Washington’s agreements with other countries, i.e. that the United States should amend existing treaties or create new ones.

How many votes in the Senate does Biden need to pass projects?

Pillar 2, which changes U.S. domestic law, could potentially be passed over with the so-called reconciliation process. This can be used by the U.S. Congress once a fiscal year and bills passed this way can free the Senate with a simple majority. The upper house is split 50-50 between Democrats and Republicans, with U.S. Vice President Kamala Harris voting the vote of defeat.

However, Pillar 1, which is likely to require treaty changes, would need the support of at least 60 senators – i.e. 10 Republicans assuming there are no democratic defections – under arcane scrutiny. Filibuster rules which apply to most U.S. law.

What are Biden’s chances of securing 60 votes in the Senate?

Extremely thin. Republican senators have lined up criticize the new agreement. John Barrasso, the second-oldest Republican in the Senate, earlier this month slammed plans as “anti-competitive, anti-US and harmful.” Pat Toomey, the oldest Republican on the Senate’s powerful banking committee, called the plans “crazy”.

Mike Crapo, the first Republican on the Senate finance committee, also criticized the deal, and wrote to Treasury Secretary Janet Yellen to express concern that the United States would cede the right to tax its companies. to foreign countries.

Can Biden find a way to look for this?

Possibly, however, any attempt to circumvent the Senate is likely to be the subject of technical and legalistic arguments on Capitol Hill.

Manal Corwin, a former Treasury official in the Barack Obama administration who now works at KPMG, said it could be a way to overturn existing treaties by going through both Pillar 1 and Pillar 2 using the reconciliation process.

Although under U.S. law, national legislation and treaties have given equal weight, Corwin said, a provision called the “last in time” rule allows new U.S. legislation to repeal existing treaties.

Because the agreement will give the United States the right to tax some large multinationals with annual revenues in excess of $ 20 billion and pre-tax profit margins of at least 10 percent, the U.S. tax code should change. , added Corwin, with the side effect of canceling some treaties.

“A treaty says‘ we would do this, if we did so, ’and we are repealing this through a legislative vehicle that changes the Internal Revenue Code, which is eligible for reconciliation,” Corwin said.

But Brian Jenn, another former Treasury official who has worked in the Democratic and Republican administrations, warned that passing legislation through the reconciliation process was subject to strict rules.

Efforts to pass legislation using this method are carefully examined by the Senate parliamentarian, who gives advice on the interpretation of the rules and precedents of the upper house. Earlier this year MP, Elizabeth MacDonough, governed that a federal minimum wage increase could not be included in Biden’s $ 1.9 billion stimulus bill.

A bill “that clearly overrides a treaty” may also not be eligible for reconciliation, said Jenn, who is now a partner at law firm McDermott Will & Emery.

Jenn added that efforts to overturn treaties with the reconciliation process “will also offend Democratic senators” prone to “jealously” guarding the prerogative of the upper house.

A European diplomat warned that if the United States used “legal chicanery” to pass part of the agreement, it could “open up” [up] to a concerted political challenge ”in Washington.

What did the Biden administration say about its strategy?

Not much. On Tuesday Treasury officials said they needed the support of Congress to pass the new agreement, and that they expected Pillar 1 to need a treaty. Officials said details have yet to be worked out, and that a detailed plan on how the United States will implement the agreement will be accepted in October.

Separately, one person briefed on the tax negotiations said any discussion about how the U.S. administration passed the agreement to Congress was “premature.”

“There’s also a lot that needs to be worked on, and that includes how the administration is going to deal with Congress,” the person said.

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