The Biden Administration’s plan for a global government tax cartel is running into trouble, and Treasury Secretary
isn’t pleased. She now has the U.S. playing the role of bullying enforcer against Hungary, which is blocking European Union approval.
On Friday the Treasury said the U.S. is withdrawing from a 1979 bilateral tax treaty with Hungary. Treasury said “the benefits are no longer reciprocal,” citing a loss of tax revenue for the U.S. But the timing suggests this is an act of retribution against Budapest for blocking EU approval of Ms. Yellen’s 15% global minimum tax. EU rules require the assent of all 27 members, and Hungary has refused to go along.
And why should it? Hungary has cut its flat corporate tax rate to 9% in an attempt to attract investment. That means Hungary would be a rare EU member that would have to raise its rate if the global minimum tax is approved. This is what France, Germany and other high-tax European states want since they hate tax competition. Ireland, with its 12.5% corporate rate, has shown how successful that strategy can be.
a member of Hungary’s Parliament, explained on these pages on June 21, Europe is struggling with the impact of the pandemic and the war in Ukraine. “Restricting competition among member states and adding an extra tax burden on the companies driving our economic growth is just asking for trouble,” he wrote. This unilateral bullying is not a good look for the U.S., especially for an Administration that claims to prize multilateral cooperation.
Meanwhile, the 140 or so nations negotiating the larger global tax agreement haven’t been able to agree on the balance of taxing tech and consumer goods. The main goal in Europe and elsewhere is to soak U.S. tech firms, which means less revenue for the U.S. Treasury, but other countries aren’t as happy with taxing their own companies.
The Yellen Treasury reached an accord for the global tax cartel in principle last year under the auspices of the Organization for Economic Cooperation and Development. The multilateral plan to soak private companies was supposed to be done by the middle of this year, but amid disagreements it now may not be finished until well into next year, if there is ever a final deal.
That’s hardly surprising given the varying national interests, but why the U.S. would give Europe or Asia influence over its sovereign taxing power and revenue only makes sense as a progressive ideological project. It has no economic benefits for U.S. firms.
The good news is that the elements of Ms. Yellen’s tax deal will have to be approved by home governments, which in the U.S. means Congress. She’s been counting on a Democratic Congress to pass her global pet project, but the November election could intervene.
Republicans aren’t as enthusiastic about ceding even a portion of U.S. tax sovereignty to, say, the French, never mind the Chinese. They’re likely to nix the global deal, which would be better for everyone except revenue-grasping politicians in Europe and the U.S.
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Appeared in the July 14, 2022, print edition.