The International Monetary Fund’s Christine Lagarde said in a recent blog post that “the United States and other large economies should consider introducing a global tax on financial transactions.” The present structure of the system allows for too much opacity, she says, but there are several obstacles to such an idea becoming reality.
The “global minimum corporate tax” is a plan proposed by the Chair of the Federal Reserve Janet Yellen. The plan would make it mandatory for all countries to have a global minimum tax rate.
Janet Yellen, the US Treasury Secretary,
PHOTO: REUTERS/POOL NEWS
Despite the media’s concern about the Democratic Party’s instability in Congress, don’t underestimate the party’s drive to pass anything. Consider the Biden Administration’s attempt to use global tax discussions to drive tax rises past a doubting Congress.
Treasury Secretary Janet Yellen defied a long-standing bipartisan agreement to sign the United States up for a drastic revamp of corporation tax regulations this summer. The deal, which was negotiated at the Organization for Economic Cooperation and Development, would change how tax jurisdiction is determined for the world’s top corporations (mostly American IT giants) and create a minimum worldwide tax rate of 15%.
In the 2017 Tax Cuts and Jobs Act, the United States enacted a sort of minimum tax. The global intangible low-tax income (Gilti) tax, sometimes known as the Gilti tax, presently has an effective rate of about 13%. The Biden Administration, on the other hand, intends to raise it to 21%, coupled with hiking the total corporation tax rate to 26.5 percent from 21 percent, as proposed by the House Democratic measure.
Oh, and the Administration wants to modify how businesses compute their tax responsibilities, which just adds to the confusion. Mr. Biden’s tax proposal, which he introduced last spring, would mandate country-by-country reporting, requiring businesses to compute earnings and tax payments in each overseas jurisdiction individually.
When combined with other aspects of Gilti, this would become nightmare-inducingly complicated, amounting to a sneaky tax hike. That’s why the 2017 tax reform calculates Gilti on a worldwide scale—and why Mr. Biden’s country-by-country approach has been met with skepticism by legislators.
Ms. Yellen now believes she has figured out a strategy to railroad Congress. The question of whether other nations would interpret America’s Gilti as similar to the global minimum tax, despite the small text, was a sticking point in the OECD negotiations. Companies in the United States may face double taxes if they do not get equal treatment.
The most recent OECD agreement proposes to classify Gilti as similar, although it also states in the same line that the OECD’s minimum tax is intended to be imposed “jurisdictionally.” Translation: The global minimum tax will be computed nation by country, and Congress must comply if America’s Gilti tax is to be considered.
It seems that the purpose is to put Congress in a pickle. If the worldwide OECD deal is implemented and Congress does not approve the Administration’s country-by-country regulation, American businesses would face cripplingly high taxes in other countries. This possibility is designed to assuage senators’ concerns about whether the Biden proposal is sound fiscal policy.
Ms. Yellen is assisting other nations in holding Congress hostage until Ms. Yellen obtains the Gilti adjustments she wants legislators to enact by agreeing to this wording at the OECD. This train catastrophe is cause enough for Congress to dismantle the whole global agreement.
What is the source of everything’s high price, and what will the political cost be?
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The “global tax overhaul” is a plan that would affect the US and other countries. Janet Yellen has proposed this idea, but it isn’t clear if it will pass.
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