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Biden’s Global Tax Surrender Harms American Workers and Our Economy

House Committee on Ways & Means

Subcommittee on Tax

Biden’s Global Tax Surrender Harms American Workers and Our Economy

Wednesday, July 19, 2023

Topline

  • Democrats expressed concerns regarding the competitiveness of US businesses.
  • Republicans pressed on the lack of communication between Congress and the Treasury through negotiations. Republicans also asked about China’s willingness to comply under Pillar Two of the OECD and international taxes.

 

Witnesses – Panel One

  • Michael Plowgian, Deputy Assistant Secretary for International Tax Affairs, Department of Treasury

 

Witnesses – Panel Two

  • Mindy Herzfeld, Professor of Tax Practice, University of Florida Levin College of Law
  • Adam Michel, Director of Tax Policy Studies, CATO Institute
  • Anne Gordon, Vice President, International Tax Policy, National Foreign Trade Council
  • David Schizer, Dean Emeritus and Harvey R. Miller Professor of Law and Economics, Columbia Law School
  • Peter Barnes, International Tax Advisor and Of Counsel, Caplin & Drysdale

 

Opening Statements

Subcommittee Chairman Mike Kelly (R-PA.)

In his opening statement, Kelly said that under Pillar One of the OECD, the US would pay more taxes than any other country and all of Europe. He said Treasury never should have negotiated with OECD and that the US signed up for a bad deal for all Americans. Kelly closed by saying when considering proposed rules, it’s all about jobs and companies.

 

Subcommittee Ranking Member Mike Thompson (D-Calif.)

In his opening statement, Thompson noted that Congress and Republicans are doubling down on protecting multinational corporations. He said workers and taxpayers are paying the price for multinational corporations and that Republicans are trying to preserve this system. Thompson concluded that abandoning negotiations would be worse for Americans than pulling out of this process and allowing other countries to oversee our economy.

 

Testimony – Panel One

Michael Plowgian, Deputy Assistant Secretary for International Tax Affairs, Department of Treasury

In his testimony, Plowgian said that multinational corporations’ ability to shift paper profits to low tax jurisdictions led to a race to the bottom. He added that Pillar One would eradicate the unilateral and discriminatory DSTs that impact US businesses. He encouraged Congress to consider Pillar Two, adding that it will level the playing field between US and foreign businesses. Plowgian also noted that Pillar Two will end the race to the bottom by establishing a global minimum tax on the earnings of large multinationals regardless of where they are headquartered. He concluded that Pillar One and Pillar Two can only be implemented in the US with the support of Congress.

 

Question & Answer – Panel One

R&D Credits

Rep. David Schweikert (R-Ariz.) asked what would happen to R&D credits. Plowgian noted that R&D credits are generally non-refundable, which would reduce the effective tax rate of the taxpayer.

Rep. Drew Ferguson (R-Ga.) asked why Plowgian is allowing countries with higher R&D credits to have an advantage over Americans. Plowgian said that he wants to level the playing field for all American companies because American businesses and workers will win on a level playing field.

Rep. Jason Smith (R-Mo.) asked if Congress was consulted prior to Treasury agreeing that the US R&D credit would be disadvantaged versus the R&D credits of other companies. Plowgian said he cannot speak to that decision.

Rep. Carol Miller (R-W.V.) asked if the Biden Administration would reverse course and fight at OECD to ensure US proven tax incentives like the R&D credit and LIHTC are fully protected. Plowgian said protecting US interest has always been a priority across the administration.

 

China

Smith asked if anyone in Congress signed off on the decision to give refundable corporate tax credits and Chinese state subsidies an advantage over typical tax incentives, like those enacted by Congress on a bipartisan basis. Plowgian said he was not part of that discussion.

Smith then asked if Secretary Yellen was able to receive commitments from China that it would adopt and fairly implement the OECD agreement. Plowgian said he doesn’t know if President Xi and Secretary Yellen spoke about Pillar Two, but noted that UTPR is an important part of Pillar Two since it provides an enforcement mechanism that ensures Chinese multinationals will be subject to the same minimum tax rules.

Rep. Kevin Hern (R-Okla.) asked what assurances the US has that China is going to follow the OECD rules. Plowgian said that China often tries to undermine agreements, which he recognized during negotiations.

 

International Impact

Rep. Suzan DelBene (D-Wash.) asked Plowgian what steps he’s taking to address the Canadian government’s continued interest in pursuing a DST that targets US companies and workers. Plowgian said this is a critical issue and that Treasury is engaged with Canada at all levels to dissuade them from implementing a discriminatory DST.

Rep. Gwen Moore (D-Wisc.) asked if this framework incentivizes other countries to raise their corporate taxes. Plowgian said that is correct.

 

Joint Committee on Taxation (JCT)

Thompson asked Plowgian what Congress should take away from the JCT revenue estimates. Plowgian said Congress should take away the modified baseline that JCT uses. He added that if other countries adopt Pillar Two and the US does not, the impact of Pillar Two on US revenues could vary by $400 billion, and that analysis of every scenario shows that US adoption of Pillar Two increases US tax receipts and revenue compared to inaction.

Rep. David Kustoff (R-Tenn.) asked if Treasury presented their argument to JCT to challenge their assumption. Plowgian said he is not challenging their assumptions. Kustoff asked if Plowgian disputed JCT’s assertion about a loss of $120 billion. Plowgian said the JCT analysis is for multiple scenarios, many of which show revenue increases.

Rep. Beth Van Duyne (R-Tex.) asked about the difference between the JCT analysis and Treasury’s analysis. Plowgian said Treasury assumes no change in foreign law.

Rep. Claudia Tenney (R-N.Y.) asked if the JCT numbers are wrong. Plowgian said the analysis shows the US will gain revenue in many scenarios.

 

Testimony – Panel Two

Dr. Mindy Herzfeld, Professor of Tax Practice, University of Florida Levin College of Law

In her testimony, Herzfeld said that Pillar One remains focused on taxing large, highly profitable multinationals, disproportionately impacting US technology companies while Pillar Two has morphed into a global minimum tax. She also said the US could modify its domestic rules to conform to Pillar Two but clarified that this is unlikely to make up lost revenues. She closed by asking Congress to provide the Treasury Department with clearer guidance.

 

Mr. Adam Michel, Director of Tax Policy Studies, CATO Institute

In his testimony, Michel said Pillar One is intended to replace extraterritorial DSTs targeted at the United States’ most profitable and iconic brands, and that its new digital tax is designed to redistribute the profits of the largest American businesses to other governments. He noted that Pillar Two’s 15% minimum tax includes a new extraterritorial levy that will allow other countries to reach into US borders and claim taxing rights. He closed by asking Congress to instruct the President to withdraw from the OECD convention.

 

Ms. Anne Gordon, Vice President, International Tax Policy, National Foreign Trade Council

In her testimony, Gordon said that there are still several major issues with Pillar One and that it is too early for the US to sign Pillar One. She added that the US is not a tax haven, so Americans don’t need a new tax system. Gordon said the US needs more time to create a cohesive set of rules that accommodate US tax policies. She closed by urging Congress to work with the OECD, Treasury negotiators, and foreign counterparts to create a regime that works with the US tax code.

 

Dr. David Schizer, Dean Emeritus and Harvey R. Miller Professor of Law and Economics, Columbia Law School

In his testimony, Schizer said taxes must be imposed by Congress, not the President. He also said that tax policy of the US must be set by the US, not by other countries. Schizer closed by saying the administration undercut Congress on a decision about Pillar Two and encouraged other countries to reshape US tax law.

 

Mr. Peter Barnes, International Tax Advisor and Of Counsel, Caplin & Drysdale

In his testimony, Barnes said that Pillar Two comes in the next step to align corporate tax rules. He noted that more than 100 countries will adopt Pillar Two and that the US will earn more revenue if it adopts Pillar Two. Barnes also noted that US multinational companies will benefit from reduced compliance burden and increased competitiveness. He closed by expressing his approval of Pillar Two and said aligning US tax policy with Pillar Two will allow the US to continue leadership in this realm.

 

Question & Answer – Panel Two

Competition

Hern asked if these rules eliminate tax competition or create a new competition. Herzfeld said that they shift tax competition to other areas.

Ferguson asked if this would create or take jobs away from America. Gordon said that this would reduce the number of American jobs.

Rep. Lloyd Doggett (D-Tex.) asked if the adoption of a global minimum tax diminished the competitiveness of US businesses. Barnes said it would not diminish competitiveness and that the global minimum tax would just put everyone on the same level.

Rep. Randy Feenstra (R-Iowa) asked if Pillar Two hurts US competitiveness. Gordon said that giving a lot of data to countries without the same protections for taxpayers as the US is a threat to American businesses.

 

International Actors

Thompson asked if each of the countries in the inclusive framework have the right to enact or not enact domestic legislation that aligns with Pillar Two. Barnes said that every country has the authority to do so.

Ferguson asked if this would lead to less stability in international tax administration. Herzfeld said there are questions regarding whether or not UTPR is consistent with our tax treaties.

Ferguson then asked if the US would be giving tax revenue to a foreign country instead of collecting it in the US. Schizer said that is the case.

Kustoff asked what the risks are with China being associated with Pillar Two. Herzfeld said China has been silent on their intention and that many large Chinese companies are headquartered in Cayman.

Kustoff then asked if there would be challenges to monitoring China’s compliance. Herzzfeld said the OECD is designing a mechanism to measure countries’ compliance.

 

For more information on this meeting, please click here.

For an archive of past SIFMA hearing coverage, please click here.