Reconciliation and a Corporate Minimum; Congress should wait until global agreement finalized


Daniel Marsh, Editor

After months of deliberation, Congress finally passed the bipartisan Infrastructure Investment and Jobs Act, which has become one of America’s largest infrastructure bills due to the sheer size and scope of the plan. 

However, its passage has widely been viewed by pundits and politicians alike as a precursor to the larger $1.7 Reconciliation Bill, which has yet to clear the Senate. 

Opinions on the merit of this much federal spending aside, the package contains a severe flaw, which can be fixed through time and planning. However, it doesn’t immediately concern more mainstream issues such as the controversy behind raising our domestic corporate tax or taxes on wealthy individuals. 

In fact, the implications of the matter go far beyond our borders. It’s called the global minimum corporate tax, and will require signatures from most other nations, friend and foe alike. While it may be hard to get anything through congress these days, this is nothing compared to the international stage. 

Fortunately, it looks like this may happen in the near future. Last October, multiple nations signed on to a comprehensive agreement that would reform the taxation of multinational corporations (or MNCs).

This plan would establish a fixed 15% global minimum tax rate on the overseas profits of MNCs. This is primarily meant to prevent MNCs from constantly relocating their business (and income) to countries with lower tax rates (a practice known as “profit shifting”). 

Currently, several countries compete with each other by lowering their tax rates to encourage MNCs to move within their borders. This proposal would eliminate the need for “tax reduction competitions,” ensure that MNCs that shift profits pay their fair share, while providing an additional source of revenue for any host government.

This is where the Reconciliation Bill factors in. As one of the core revenue-raising components, congress plans to increase the strain on U.S based MNCs by reducing tax deductions for foreign income, and outright increasing taxation on other forms of global income that aren’t highly taxed as of now. 

This looks good on paper. However, it would be ill-advised to push forward with such a measure before securing a global minimum. If the deal can’t be finalized, passing the Reconciliation Bill will put our country at a disadvantage. 

Our economic competitors will, in turn, lower their rates and attract businesses from our borders by continuing the tax reduction competition. This cannot be allowed to happen.

Despite high-profile endorsements from President Biden and other world leaders, it’s important to remember that this plan hasn’t been finalized. The diplomatic contention that usually occurs is present and a threat to passage. 

As a leading economic power, thorough negotiation with the eventual assurance of passage or denial with other nations should always come before passing our own reforms on global taxation. Global talks will eventually end, one way or another, and they should be our paramount focus, as global tax policy may just be entering an age of reform.