In the closing stretch of a tumultuous presidential election, it’s natural that America’s sharp political differences come into focus. There is no shortage of takes on hot button issues like inflation, immigration and foreign policy. Healthy disagreements and discourse make our democracy stronger.
Tax policy is no exception – the contrast between the political parties is sharp and the fallout from those policy decisions is vast. Former President Donald Trump has pledged to extend the 2017 Tax Cuts and Jobs Act that became one of the hallmark legislative achievements of his first term and led to sustained economic growth. While Vice President Kamala Harris has yet to lay out a detailed economic platform she is expected to mirror the policies of President Joe Biden, who vowed to end the 2017 tax cuts.
Both candidates should make their positions clear and try to convince a majority of Americans of their merits; make the case about which fiscal policy decisions will help the economy, including distinctions about the appropriate tax rate, structure and priorities. But one area where we used to be able to find common ground is the concept that tax revenue should help Americans, not line the coffers of foreign governments.
Unfortunately, the Biden-Harris Administration has taken a different perspective. In October 2021, the 137 member countries of the Organization for Economic Cooperation and Development (OECD), an unelected and unaccountable international economic forum, negotiated a 15 percent global minimum tax. Known as “Pillar 2,” this new mandate forces multinational enterprises to pay a minimum level of global corporate tax – collected in each jurisdiction in which they operate. This means that American companies with subsidiaries overseas could be subject to an additional 15 percent “top up” tax, in addition to all their pre-existing financial obligations.
U.S. Treasury Secretary Janet Yellen, who represented the U.S, in the negotiations, supported Pillar 2 as benefitting “the entire world.” Meanwhile, the bipartisan Joint Committee on Taxation has estimated that a global minimum tax could cost American companies $122 billion in revenue to foreign taxes.
In effect since January 2024, Pillar 2 squeezes more revenue out of American companies and not for any worthwhile cause – like securing the border, rebuilding our military or paying down our record high $35 trillion dollar national debt – but to boost the treasuries of countries overseas.
A company, fully compliant with all required taxes owed in their registered jurisdiction, can now be told by another country to pony up if their total tax rate was less than 15%. In Brussels, for example, the subsidiary doesn’t have to have earned the money, nor does the money have to have been accounted for on their books. The ensuing funds won’t be put into the U.S. Treasury to help with U.S. domestic challenges but pocketed by the foreign nation.
Being told to pay a tax not based on what a company earned but rather on what a parent company in another tax jurisdiction did or didn’t pay violates basic fairness. Compliance is complex, costs are high, and it harms companies who are paying the required taxes in a particular jurisdiction and then told to pay more in the name of “Global Fairness”.
The U.S. Constitution makes clear through Article 1, Section 7 that the tax laws of the US are created by Congress. The Biden-Harris Administration has decided to cede this responsibility to foreign nations.
Beyond the obvious economic harm from unfair taxation and the headaches of compliance costs, Pillar 2 raises a larger sovereignty issue. In 1776, America fought and earned our independence in a war sparked by the 1773 Tea Act designed to prop up floundering foreign entities. Fast forward nearly 250 years and the Biden-Harris Administration wants to go back to those days.
Like those patriots who dumped tea into Boston Harbor, resistance is mounting to this ill-advised scheme. A group of Republican senators have called for defunding the OECD. The legal arm of the American Free Enterprise Chamber of Commerce, the organization that I, along with former U.S. Attorney General William Barr, lead, has filed legal action in the Belgian Constitutional Court seeking to block Pillar 2.
The left never wants to admit that America’s economy is the envy of the world. Nor do they concede that the 2017 tax cuts created one of the most competitive global tax structures. Now their disdain for free enterprise has fallen to a sad new low, as they have empowered European countries to tax American industry for the benefit of European tax revenues.
