U.S. Republicans pledge to oppose Yellen’s tax deal with G7

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U.S. Republicans pledge to oppose Yellen’s tax deal with G7

Several top U.S. Senate Republicans on Monday rejected Treasury Secretary Janet Yellen’s deal with the G7 to impose a global corporate minimum tax and allow more countries to tax large multinational companies, raising questions about the U.S. ability to implement a broader global agreement.

Opposition from Republicans could push President Joe Biden to try to use budget procedures to pass initiatives with only Democratic votes.

U.S. Republicans pledge to oppose Yellen's tax deal with G7

This has led lawyers and tax experts in Washington to wonder whether this can be accomplished without crafting a new international treaty that requires approval by a two-thirds majority in the 100-member Senate.

“It’s not right for the United States,” Republican Senator John Barrasso said of the tax deal struck Saturday by the finance ministers of the rich G-7 democracies.

“I think it’s going to be anti-competitive, anti-American, harmful to us as we try to continue to grow the economy and certainly as we come out of the pandemic,” Barrasso, who leads the Senate Republican Conference, told reporters at the U.S. Capitol.

In the landmark agreement, G7 finance ministers agreed to push for a global minimum tax rate of at least 15 percent and to allow member countries to tax up to 20 percent of excess profits – above a 10 percent margin – of about 100 large, high-income companies.

In exchange, the G7 countries agreed to eliminate taxes on digital services, but the timing of those taxes depends on how the new rules are implemented.

The deal could pave the way for broader support from G20 countries and about 140 economies involved in international tax negotiations for big tech companies such as Alphabet Inc (GOOGL.O) Google, Facebook Inc (FB.O), Amazon.com Inc (AMZN.O) and Apple Inc (AAPL.O). They are all expected to be included in the new, broader mechanism, which is expected to be finalized in October.

Republican Senator Pat Toomey said the deal would drain tax revenues from U.S. coffers to other countries, adding that he hoped some Democrats would not want to “put the American economy through this kind of suffering.”

“The Republicans won’t support this, and they’re going to have to hold this vote along party lines. It has to fail,” Toomey told Fox Business Network.

Daniel Bunn, an international tax expert at the Tax Foundation, a right-wing think tank in Washington, said he believes establishing new taxing rights for 100 multinational firms would require a new tax treaty.

The U.S. Constitution gives the president the power to enter into international treaties “with the consent of two-thirds of the senators present.” U.S. participation in some international treaties has been hampered by internal partisan divisions, where the president approves deals but they are not ratified by Congress.

Manal Corwin, head of KPMG’s national tax practice in Washington and a former U.S. Treasury official, said Yellen’s G7 deal could be passed through legislation that overrides existing bilateral tax treaties – with a simple majority vote in the budget reconciliation process.

Senator Ron Wyden, when asked how much can be done through the budget reconciliation procedure and what would require a supermajority vote, said: “These are all issues that lawyers are immersed in right now.”

Wyden, who chairs the Senate Finance Committee, which deals with taxation, told reporters that curbing the use of tax-avoiding countries and ensuring a minimum level of corporate taxation “is in the long-term interest of American workers.”

“There’s a lot of hard work to be done here,” Wyden added. “It’s going to take months, that’s for sure.”

Toomey, who sits on the finance committee, said he believes Democrats will only be able to pass tax changes with Democratic votes, without a treaty, but added that it would require the U.S. to “capitulate” and agree not to oppose changes imposed by other countries.