KOENIGSWINTER, Germany ( Associated Press) — Treasury Secretary Janet Yellen celebrated a “historic day” last summer, when more than 100 countries agreed to a global minimum tax agreement, aimed at attracting and keeping multinationals from the world’s countries. had to be kept on a more equal footing. President Joe Biden tweeted that the idea was “diplomacy is reshaping our global economy and delivering for our people.”
But this week, when Yellen joined the Group of Seven finance ministers for meetings in Germany, she found herself emphasizing that the prospects for moving forward with the historic tax plan were simply “not bleak”.
The plan is running against new resistance abroad and old divisions at home as fresh global concerns take center stage.
The ongoing war in Ukraine, the threat of rising food insecurity, crushing inflation and other urgent matters have diverted finance ministers’ attention from implementing the plan before the 2023 deadline. To increase the pressure, Poland strengthened its opposition with a veto at a meeting of EU finance ministers in Brussels in April. And Republicans in Congress are leaning, too.
On Friday, G-7 finance ministers ended their two days of meetings with a joint statement, most notable for its announced promises of $19.8 billion in economic aid for Ukraine. It included only brief mention of the tax idea, adding that ministers reiterated their “strong political commitment to timely and effective implementation” of the plan to “implement the new rules globally”.
Broadly speaking, the global minimum tax deal is designed to subject large multinational firms to a 15% tax rate depending on where they operate. The deal also provides for a tax on the share of the largest global companies’ profits in countries where they do business online but may not have a physical presence.
This is to stop an international race for corporate taxation to the bottom, which has prompted multinational businesses to book their profits in countries with lower tax rates. This enables them to avoid taxes and encourages countries to reduce rates to attract companies.
The G-7 website calls it “a real revolution in international tax law”. French Finance Minister Bruno Le Maire called it “the most important international tax settlement in a century”.
But Poland is raising new concerns about how the plan will be implemented, and the G-7 meetings did not appear to break the impasse. EU rules require the consensus of a member state to change tax laws.
German Finance Minister Christian Lindner said at the end of the G-7 ministerial meetings that “all technical concerns have been addressed, so there can no longer be any technical considerations, but … excessive political considerations.”
A spokesman for Poland’s finance ministry, Wydził Prasowy, cited concerns about “undermining the EU’s competitiveness and placing additional burdens on European businesses” without ensuring that the digital giants are adequately taxed. He said the concerns grew “especially when faced with the difficulties of the times of the current pandemic.”
Yellen, who has made tax deals one of his top priorities as Treasury secretary, began this week’s Europe trip with a stop in Poland to urge Polish leaders to reconsider their position .
“We are working to try to address their concerns,” she told reporters on Thursday. “We would love to see Poland come on board. I think it’s not disappointing.”
So far, 137 countries, representing about 95 percent of the world’s GDP, have agreed on the plan to “ensure that corporations appropriately share the burden of government funding,” she said.
But Yellen also faced opposition in the House of Congressional Republicans, who have shown little appetite for the United States to end the accord. He says the plan will make the US less competitive in the global economy.
Mike Crapo of Idaho, the top Republican on the Senate Finance Committee, and Texas Representative Kevin Brady, the top Republican on the House Ways and Means Committee, both pointed to Poland’s opposition in a joint statement last month.
“If the EU is already hitting the odds, then no one should expect countries like China to implement this deal any time soon,” he said.
C. Eugene Stuerle, a fellow at the Urban Institute and co-founder of the Urban-Brookings Tax Policy Center in Washington, said the deal could be unfortunate to arise in a politically fragmented time.
“What makes things like this difficult these days is that the two parties are so divided,” he said. “That’s really what threatens this law more than the idea – which I think will traditionally have support, at least some support from both sides of the aisle.”
There is also a crush of other global concerns demanding attention.
“Governments have a certain amount of bandwidth—current events tend to push some of these other things a little further down the list,” says David Feldman, a professor of economics at the College of William & Mary in Virginia.
Mark Goldwyn, senior policy director at the Private Committee for a Responsible Federal Budget, said the overall idea of the tax plan is “not punitive” but to “raise revenue for all countries”.
“It also hopefully prevents countries from cutting their taxes relative to other countries,” he said.
According to the Congressional Research Service, since the mid-1960s, US corporate tax payments have declined. Relative to the size of the economy – about 1 percent of GDP in 2020, up from 3.9 percent in 1965.
,
