KOENIGSWINTER, Germany (AP) — Treasury Secretary Janet Yellen marked a “historic day” last summer when more than 100 countries agreed to a global minimum tax agreement, aimed at putting countries in the world on an equal footing to attract and retain multinational companies. President Joe Biden tweeted that the idea was “diplomacy reshaping our global economy and serving our people.”
But last week, as Yellen joined Group of Seven finance ministers for meetings in Germany, she found herself insisting that the prospects of moving forward with the landmark tax plan do not were simply “not hopeless”.
The plan is facing new resistance abroad and old divisions at home as new global concerns take center stage.
The ongoing war in Ukraine, the threat of growing food insecurity, crushing inflation and other pressing issues have distracted finance ministers from getting the plan in place before the deadline for 2023. To add to the pressure, Poland bolstered its opposition with a veto at an April meeting of European Union finance ministers in Brussels. And Republicans in Congress are also balking.
On Friday, the G-7 finance ministers concluded their two days of meetings with a joint statement that was notably illustrated by announced pledges of $19.8 billion in economic aid to Ukraine. It only included a brief mention of the tax idea, saying ministers had reiterated a “strong political commitment to the rapid and effective implementation” of the plan to bring “new rules into force at global”.
Broadly speaking, the Global Minimum Tax Agreement is designed to subject large multinational corporations to a 15% tax rate wherever they operate. The deal also plans to tax a portion of the profits of the world’s biggest companies in countries where they do business online but may not have a physical presence.
It is meant to end an international race to the bottom for corporate taxation that has led multinational companies to book their profits in low-tax countries. This allows them to avoid taxes and encourages countries to lower rates to attract business.
The G-7 website calls it “a true revolution in international tax law”. French Finance Minister Bruno Le Maire called it “the most important international tax agreement for a century”.
But Poland is raising new concerns about how the plan would be implemented, and the G-7 meetings did not appear to break the deadlock. EU rules require unanimity of member countries to change tax laws.
Christian Lindner, Germany’s finance minister, said at the end of the G-7 ministers’ meetings that “all technical concerns have been cleared up, so there can no longer be any technical considerations, but…highly political considerations “.
Wydział Prasowy, spokesman for the Polish Ministry of Finance, expressed his concerns about “the decline in EU competitiveness and the imposition of an additional burden on European companies” without guaranteeing that the digital giants are properly taxed. He added that concerns were heightened “especially in the face of the difficulties of the current post-pandemic period”.
Yellen, who has made the tax deal one of his top priorities as Treasury Secretary, opened last week’s visit to Europe with a stopover in Poland, in part 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 join us. I think it’s not hopeless.”
So far, 137 countries representing nearly 95% of the world’s gross domestic product have agreed on the plan to “ensure businesses share the burden of government funding fairly”, she said.
But Yellen also faces headwinds at home from congressional Republicans who have shown little appetite for the United States to keep its end of the deal. They say the plan would make the United States less competitive in a global economy.
U.S. Senator Mike Crapo of Idaho, top Republican on the Senate Finance Committee, and U.S. Representative Kevin Brady of Texas, top Republican on the House Ways and Means Committee, both pointed to opposition of Poland in a joint statement last month.
“If the EU is already facing roadblocks, no one should expect countries like China to implement this deal anytime soon,” they said.
C. Eugene Steuerle, a fellow at the Urban Institute and co-founder of the Urban-Brookings Tax Policy Center in Washington, said the deal may be unlucky to have emerged in politically fractured times.
“What makes something like this difficult these days is that the two sides are so divided,” he said. “That’s what really threatens this legislation more than the idea – which I think traditionally would have gotten support, at least some support from both sides of the aisle.”
There is also just the crush of other global concerns that demand attention.
David Feldman, professor of economics at the College of William & Mary in Virginia, says that “governments have some bandwidth – current events have to push some of these other things a bit further down the list.”
Marc Goldwein, senior policy director of the Privy Committee for a Responsible Federal Budget, said the general idea of the tax plan “is not to be punitive” but “to raise the incomes of all nations.”
“This will hopefully also prevent countries from lowering their taxes compared to other countries,” he said.
According to the Congressional Research Service, since the mid-1960s, corporate tax payments in the United States have declined relative to the size of the economy – to about 1% of GDP in 2020, from 3.9 % in 1965.