- Today’s “commitment" has to negotiate so many hurdles over such a long period of time that any immediate market impact should be incremental at most. Markets are used to seeing these sorts of hopeful multilateral announcements dissolve as governmental gears grind, and this is likely to be no different.
- But, today’s G7 ministerial announcement might weigh negatively upon markets a bit at the beginning of the week, largely due to misunderstanding of this G7 “commitment” fomented over the weekend by economists and pundits already eagerly highlighting their own policy preferences and currying favor with Biden policymakers.
- This “commitment" almost certainly won’t affect US companies in the short to medium term (at least through end CY 2021), and perhaps never in the US.
- The only reason our odds are even that high is because it’s been suggested by Biden in the ongoing infrastructure negotiations, which we continue to think are about 60% likely to yield success.
- Biden’s inclusion of the 15% minimum as a pay-for in negotiations will continue to be much discussed, but won’t itself make or sink an infrastructure deal.
- Biden doesn’t have the political capital or muscle to make the G7 “commitment” happen in Congress. Biden’s Democratic Party is split between high-tax progressives - who criticize him despite ladling out billions for years to come to their ‘blue’ states in the Covid bill - and centrists who make up the tiny and evanescent Democratic congressional majority. Plus, Republicans have no incentive to help him implement an international commitment to increase corporate US taxes during an economic recovery.
- Yellen now is viewed in Washington as a Biden apparatchik, not as an independent policy voice, and so has no political capital of her own to help get it through.
- Between Republicans and centrist Democrats fighting for their political lives in 2022, there’s not likely to be a congressional majority for it.
Finally, the US policy would have to be worked out in detail over weeks and months, whether as part of infrastructure or other legislation. There’s not even agreement on what sort of tax boost might happen in the US. As the Tax Foundation pointed out this week, there’s not a good understanding of the differences between book and taxable income, or the revenue or policy consequences: https://taxfoundation.org/corporations-zero-corporate-tax/