Yellen’s Global Tax Plan Gets No Love From Manchin-Schumer Deal

For U.S. Treasury Secretary Janet Yellen, there’s one stinging omission from the compromise legislation agreed to last week by Senator Joe Manchin and Majority Leader Chuck Schumer. Tax changes included in the bill fail to bring the U.S. in line with a global deal championed by Yellen and backed last year by almost 140 countries, which aims to reshape the way multinational companies are taxed around the world.

Failure to get the U.S. on board for the specific change—a 15 percent global minimum corporate tax rate—risks forgoing billions in U.S. tax revenue and sinking one of President Joe Biden’s and Yellen’s key accomplishments.

“If the administration is unable to get this through Congress—their signature international agreement—this would be devastating for the Treasury’s international credentials,” said Jacob Kirkegaard, a senior fellow based in Brussels at the German Marshall Fund. “Janet Yellen is a highly esteemed policymaker, but—What can you say?—she comes across as someone who ultimately doesn’t deliver.”

The global minimum tax was attached with little controversy to Biden’s original long-term spending package, the Build Back Better bill. Since the collapse of that bill last year, the Treasury has been waiting for any new piece of legislation to get it through.

Now that one has finally arrived, however, it doesn’t go far enough. While it does include a 15 percent minimum “book tax” on companies traditionally eligible for credits and deductions, it’s not in line with the global deal brokered via the Organization for Economic Cooperation and Development (OECD).

A Treasury official, who spoke on condition of anonymity, acknowledged the current bill wouldn’t satisfy the rules around the global minimum tax. The official said, however, that the book tax is an important step toward getting big companies to pay a fair level of tax and that the global agreement remains a top priority.

Because of differences between how the two measures are structured, the U.S. book-income tax isn’t a perfect stand-in for the globally agreed minimum tax. Peter Barnes, a tax specialist at the Washington law firm Caplin & Drysdale, falls somewhere between the Treasury’s positive take and Kirkegaard’s reaction. “I think it is a blow, but I don’t view it as cataclysmic,” he said.

Barnes said he expects that, as other countries adopt the global minimum tax, U.S.-based companies will lobby Congress to bring the U.S. fully into compliance. That’s because American companies would then be subject to more taxes abroad or even to double taxation, even as the U.S. government was losing out on that revenue.

“As the rest of the world moves forward, the U.S. Congress will hear from companies and will move forward, as well,” he said.

Still, that could take years.

The Biden administration could try again during the lame-duck session after the November elections, especially if the European Union (EU) has by then voted to implement the global minimum tax. Perhaps U.S. lawmakers could attach the measure to another so-called budget reconciliation bill—which removes the need for Republican votes by requiring just a simple majority in the Senate. But the Democrats’ appetite for another drawn-out legislative process at that point is questionable, and Manchin might still stand in the way.

After that, Republicans, many of whom oppose the overall global tax deal, are expected to take control of one or both houses of Congress. “After the midterms, it doesn’t look like any kind of minimum tax deal will have an easier time,” said Kirkegaard.

—With assistance from Isabel Gottlieb & Laura Litvan.

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