(Bloomberg) — An unprecedented global agreement on how to tax corporations, a key diplomatic victory for President Joe Biden, is at risk of unraveling after a member of his own party delayed a crucial vote, threatening the chances of the world’s biggest economy joining the deal.
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The US Senate has an increasingly narrow path forward after Senator Joe Manchin said he wanted to wait until September to consider a bill that included committing to a 15% global minimum corporate tax, the cornerstone of a deal that Treasury Secretary Janet Yellen helped negotiate with nearly 140 countries last year.
Time is running out as Democrats only have until Sept. 30 to use the fast-track budget reconciliation process to pass the bill without the help of Republicans. With control of Congress at stake in November’s midterm elections, Republicans have already said they’ll let the current deal die if they regain power.
“Regardless of the state of Democrats’ reckless attempts to increase taxes on US businesses in the face of a recession, I will continue to push for additional deliberation and an opportunity to renegotiate terms of the OECD agreement with bipartisan input from congressional tax writers,” Senator Mike Crapo of Idaho, the top Republican on the Senate Finance Committee, said in a statement, referring to the Organization for Economic Co-operation and Development, which helped broker the agreement.
The global pact, paired with a related tax plan for digital economy profits, was heralded last year as a historic agreement that would put an end to countries’ slashing taxes to compete for investments, which Yellen had warned was a “race to the bottom” that starved governments of revenues.
Now, its viability worldwide is potentially threatened. The European Union, facing its own political obstacles, and other nations have been closely watching the US before they take on the challenge of changing their own tax laws.
“The whole notion of trying to get to some global approach, where we don’t have countries bidding against each other, makes enormous international sense, but I don’t think that’s going to happen without American leadership,” Senator Mark Warner, a Virginia Democrat, told reporters Thursday.
Yellen is continuing to work on finalizing the global minimum tax, the Treasury Department said in a statement on Friday.
“It will level the playing field for US businesses, decrease incentives to move jobs offshore, and close loopholes that corporations have used to shift profits overseas — which will benefit American workers, businesses, taxpayers, and middle-class families,” according to the statement. “It’s too important for our economic strength and competitiveness to not finalize this agreement, and we’ll continue to look at every avenue possible to get it done.”
Manchin halted ongoing negotiations Thursday night with Senate Majority Leader Chuck Schumer on a tax, climate and health bill, meant to be the centerpiece of the Democratic Party’s election agenda.
Manchin said he couldn’t support any tax or climate measures as part of the legislation, leaving only a drug-pricing deal and an extension of some Affordable Care Act health subsidies. He said in a radio interview Friday that he wanted to wait for the next round of inflation data before considering a vote in September.
In addition to Manchin’s hesitation over inflation, Hungary’s concerns about the war in Ukraine have led its government to withhold support for the deal. And the government transition in the UK to replace Boris Johnson as prime minister could also be a hindrance, according to Daniel Bunn, an executive vice president at the Tax Foundation.
“What it shows is that you can negotiate something at the political level internationally, but you still have to pay attention to domestic politics and other economic concerns that pop up along the way,” Bunn said.
It’s unclear when Democrats will again have sufficient majorities in Congress to pass the 15% global minimum tax, known as Pillar Two. The other half of the deal, Pillar One, would reshape the rules for how corporate profits are allocated across borders and likely require the revision of many global tax treaties. In the US, that’s particularly fraught, because it could require at least 67 senators to vote in favor of treaty changes, a highly unlikely outcome in that ultra-partisan chamber.
Senate Finance Committee Chairman Ron Wyden has said repeatedly in recent weeks that the climate and tax measures in the bill are designed to reduce energy costs for households and that additional tax revenue to go to the deficit would reduce inflationary pressures.
(Updates with Mike Crapo and Treasury statements, starting in fourth paragraph.)
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