Yellen’s art of the tax deal has a difficult continuation
WASHINGTON, Jul 9 (Reuters Breakingviews) – Janet Yellen’s dealmaking days are just beginning. The Treasury chief was known more as an economist than a negotiator. Still, it was the former head of the Federal Reserve who convinced 130 countries to support a minimum corporate levy earlier this month. Convincing Congress to do the same while preserving the global coalition will be an even more tricky challenge.
Yellen used a combination of carrots and whips to get other nations to join in. Together with her European counterparts, she emphasized that US politicians of all stripes are unanimous against the digital service taxes in the region and that a trade war could be triggered if no compromise is found. In order to secure the support of India and China, she stressed that the deal would reduce the incentives for her domestic global companies to look for more tax-efficient locations overseas. But she has yet to win over the skeptics at home.
Republican leaders of the finance committees of both chambers of Congress wrote to Yellen Thursday to express concern that the global tax treaty was benefiting other countries at the expense of American interests. They are particularly concerned that some multinational corporation taxation rights are being assigned to countries where goods and services are consumed rather than where the corporations are located. Treasury officials have stressed that the United States would not lose any revenue, but some Republicans argue that the formula would distribute up to 30% of global profits to other countries.
Another problem is carveouts. For example, the UK has been campaigning for financial services to be excluded from the deal and the mining sector to be excluded. Meanwhile, China wants to keep special economic zones, while Switzerland wants to keep certain subsidies. Some US lawmakers don’t like this kind of special treatment. The banking exception could upset Wall Street critics like Senator Elizabeth Warren. The mining clause is seen as favoring non-US companies, including those in China.
Well aware of the setback Yellen is experiencing at home, the group of the 20 major industrialized and emerging countries, whose finance officials are starting a two-day meeting on Friday, would like to know how they will win the support of Congress, which, like other national ones Legislative bodies must approve the deal. One way to do this would be to set the global minimum corporate tax rate above 15%, as President Joe Biden wants to increase the minimum tax US companies pay on non-US income from 10.5% to 21%. But that is too high for some countries that may then withdraw their support for the global agreement. Trying to convince various parties with competing interests that a tax deal is a win-win situation can be more than even Yellen can handle.
consequences @GinaChon on twitter
– Finance and central bank chiefs of the group of 20 major industrialized and emerging countries started a two-day meeting on July 9th.
– On the agenda of the G20 meeting were discussions on the global minimum corporate tax of at least 15%, which was supported by 130 countries on July 1st.
– The G20 finance ministers will urge unresolved issues in a proposed global corporate tax overhaul to be ironed out by October and urge objectors to join the deal, Reuters reported on July 9, citing the latest version of a draft statement.
Editing by Swaha Pattanaik and Marjorie Backman
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