Kicking the Tires on a Global Minimum Tax
Good morning, and happy Tuesday.
If you’ve missed Uphill landing in your inbox this last week, that’s because our fearless leader Haley Byrd Wilt has been otherwise occupied. Which brings us to some happy news: Baby Lewis Evan Wilt, evidently a go-getter like his mama, decided to make his appearance a month early.
While Haley gets some much deserved time away, reporters Harvest Prude and Ryan Brown will be stalking the halls of Congress in her stead. If you see us at stake-outs, please say hi! Or feel free to send us tips. We promise we’re friendly. (Word to the wise: Harvest and Ryan both have a coffee addiction, so chats at Cups or Longworth Dunkin’ are also very welcome.)
Congress Skeptical of Global Minimum Tax
With the goal of getting rid of so-called “tax havens” around the globe, the Group of Seven—a coalition of the richest liberal democracies in the world—agreed early this month to push for a global minimum tax rate for multinational companies. In the press release announcing the plan, it was clear who the target of these changes were: Big Tech.
“G7 Finance ministers strike seismic agreement on global tax reform that will mean the largest multinational tech giants will pay their fair share of tax in the countries in which they operate,” read the first line of the release.
Now comes the hard part of actually convincing countries around the world that this is a plan worth implementing on a global scale. One particularly skeptical institution: the U.S. Congress.
On paper, the plan seems simple. What the G7 agreed to is a tax rate of 15 percent with rules that would require companies to pay taxes in all the countries they operate in, not just where they are headquartered. The plan aims to cut back on what experts call base erosion and profit shifting, or BEPS. The Organization for Economic Co-operation and Development (OECD), a conglomerate of countries that works to implement uniform economic policies across all countries, defines BEPS as “tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.”
As a rule, multinational corporations prefer to operate out of countries where taxes are particularly low, which irritates countries where taxes are higher. (Apple, for instance, has long had its European headquarters in Ireland, where the corporate rate is a lean 12.5 percent.) But corporations also frequently route offshore profits through shell corporations whose presence in a given low-tax country is essentially an on-paper formality. (A 2017 leak of financial documents known as the Paradise Papers showed that Apple had parked more than $100 billion in profits on the small European island of Jersey. That same year, the New York Times reported that “a tiny handful of jurisdictions—mostly Bermuda, Ireland, Luxembourg and the Netherlands—now account for 63 percent of all profits that American multinational companies claim to earn overseas.”)
Now that the G7 has agreed to the terms of the deal, it will be presented at a G20 meeting scheduled for Rome in July. The goal is to get the more than 130 countries involved with the OECD/G20 Inclusive Framework—a coalition of countries established with the intention of cutting back on tax avoidance around the world—to all sign onto the plan.
Last week Ryan wrote about this plan in more detail and took to the Senate basement to see what some senators thought of it. Many GOP senators The Dispatch spoke to were very skeptical of the whole plan and at minimum wanted more information.
“I don’t know that it’ll really work,” Sen. Josh Hawley told The Dispatch. “So I’m skeptical about it, I’m skeptical about if it’s really enforceable, if it’s really workable.” He added that the goal was a good one and worthy of support, though.
Sen. Susan Collins told The Dispatch, “Right now it seems to be more a press statement than a real reality.”
“So far as I could tell, it’s not something that many nations have signed up for.” Sen. Mitt Romney told The Dispatch. “Some are saying, ‘Hey you guys go first and we’ll see how it works.’ Something of that nature would have to be agreed to by many other nations before it would make any sense. And frankly, I don’t know how it would apply.”
Others are more critical of the goal itself. “It’s a very bad idea to be persuading OECD countries to raise their taxes,” Sen. Pat Toomey told The Dispatch last week. “What the secretary thinks is a race to the bottom is, I think, wildly mischaracterizing what’s going on here. Countries that are pursuing economic freedom and prosperity for their people should not be characterized that way.”
As the world learns more about this plan, the impediments to implementation seem to grow.
The United States is just one country out of the more than 130 involved in the negotiations, so it’s not just one road this plan has to go down. There are countries around the world that benefit a great deal from having low corporate taxes. These policies draw investment and boost local economies.
Take Ireland, for example, where leaders have already pushed back against the G7 plan.
“It’s been a huge part of our economic model,” Irish Deputy Prime Minister Leo Varadkar, who is also trade minister, told reporters about their low corporate taxes. “We are going to push back very strongly against anything that might jeopardize that.”
Complicating matters further, many experts say that in order to actually accomplish the desired outcome of changing the global tax structure, treaties are necessary—not just changes to already existing laws around the world. In order to approve a treaty in the U.S. Senate, a two-thirds majority is required. Getting 67 senators to agree on something will be a tall order given the nature of the evenly divided chamber.
In a recent webinar, Jesse Eggert, Maikel Evers, and Mary Bennett—all former OECD officials—spoke about the plan and the difficulty it faces going forward.
“I’ve been troubled by the fact that folks from the OECD keep saying that these are things that countries can do, without treaty changes, just by their domestic law,” said Bennett, the former head of the OECD’s Tax Treaty, Transfer Pricing and Financial Transactions Division. “There are restrictions in existing treaties on what you can do.”
Inching Toward Climate Action in the House GOP
“The climate is changing, and decades of a global industrial era that has brought prosperity to the world has also contributed to that change.” So reads the landing page for the Conservative Climate Caucus, the latest project of a growing group of House Republicans.
The caucus, which launched last week and quickly swelled to 62 members, is a sign that the politics of the climate change debate have started to shift: Climate issues are becoming less anathema to some on the right.
“I felt a responsibility, as I have my whole life, to be a good steward of this earth,” Rep. John Curtis of Utah, the chairman of the group, told The Dispatch. “At some point—I wish I could tell you when—a light bulb went off: I don’t have to abandon my conservative values to be a good steward of the earth.”
The group has been in the works for about a year. Last year, Curtis hosted a couple dozen lawmakers in Utah for a summit that included briefings on policies from carbon pricing to data on how GOP voters view climate issues.
The goals of the caucus are a far cry from the society-reshaping proposals of the progressive left, like the Green New Deal. Curtis said that the caucus does not plan to endorse specific legislation at all—at least not yet.
Instead, the new caucus will be something of a safe space for climate-conscious (or simply climate-curious) Republicans. According to the group’s website, members will meet energy industry and think tank leaders, attend briefings about how climate change impacts their districts and their constituents, and discuss how to better engage on the issue—while still prioritizing economic growth.
A lot of daylight remains between these Republicans and Democrats on how to handle environmental policy. Utah Rep. Blake Moore, another member of the caucus, said in an April virtual town hall that “it’s easy for a Democrat from an urban district to talk about these things, because the companies that produce energy are not there. … It’s tough for Republicans who represent these energy producers.”
President Joe Biden set an ambitious goal of cleaving the U.S. carbon emission levels from 2005 in half by 2030, and below zero by 2050. It’s a goal Republicans have dismissed as unrealistic and potentially devastating to the economy.
Members of the caucus are attempting to walk a rhetorical tightrope—talking more urgently about the climate without villainizing the fossil fuels that remain an economic lifeline in many of their constituencies.
Curtis said when he talks to voters back in his district, “they know that coal is on the way out … they want someone to go to their district, go see the coal mine that’s been shut down, see the unemployment, then help them develop a transition plan that fits them.”
Curtis said he believes the U.S. can be a worldwide example of pioneering cost-efficient, greener technologies. He mentioned recent pledges by automobile manufacturers to transition from gas to electric in the coming years: “That’s not government. That’s all market. It’s transitioning, [but] let’s be respectful of the people who helped us through the industrial revolution, who sacrificed their health and safety.”
Arkansas GOP Rep. Bruce Westerman, ranking member of the Committee on Natural Resources, told The Dispatch for him the central question is: “How do we make the fuels and the energy we’ve got the cleanest possible? My personal opinion—and I think this aligns with Republican values—energy should be the most economical, cleanest energy we can produce.”
Westerman, who is a registered forester, is a sponsor of the Trillion Trees Act. It calls for planting 1 trillion trees by 2050 in a bid to capture 205 gigatons of carbon. The plan would also incentivize building with wood as a way to sequester carbon. Another Republican-backed bill is the Growing Climate Solutions Act, which would set up a USDA certification program to make it easier for farmers and private forest owners to participate in carbon credit markets.
The Dispatch has previously covered a number of groups that have stepped in to bridge a gap between how climate issues are discussed on the political right. It’s a tricky space to navigate: Wading into environmental issues from the political right is a shortcut to a rock and a hard place.
For the left, conservatives lack credibility when it comes to the climate: They largely scoffed at the idea of taking any climate action for decades, after all, and their solutions now don’t go far enough. Meanwhile, some voices on the right suspect that any work on the issue is practically the same as co-signing the Green New Deal.
“I’ve watched these sorts of efforts in the past, where Republicans … feel as though they’ve got to do something on an issue that the Democrats are beating them on … so they attempt to appear more moderate ,which never gets them any credit from the people who are pushing the extreme things like the Green New Deal and the like,” Dan Kish, senior vice president of The Institute for Energy Research, a conservative think tank, told The Dispatch. “My take on it is: Nice club to show that you care, but you get the same effect by putting a bumper sticker on your car saying you care about the earth.”
But others hailed the effort as welcome.
“The fact that they launched this climate caucus actually shows you there has been a meaningful and significant shift within the Republican Party in terms of accepting climate science and being willing to talk about it, learn about it more,” Shuting Pomerleau, a climate policy analyst at the centrist Niskanen Center, told The Dispatch.
Westerman said he is optimistic conservatives can find common ground: “We breathe the same air, we drink the same water, we care about our natural resources. We believe it’s our responsibility to leave [the earth] in better shape—or at least as good shape—for future generations … There’s a different way to achieve that than trying to regulate things into utopia.”
A Word on Infrastructure
In case you have whiplash from following the back and forth over the bipartisan infrastructure deal over the weekend, you’re not alone. As we covered in The Morning Dispatch:
The deal, initially announced Friday, was on life-support after a threat from President Biden to not sign the legislation if it was not paired with a larger reconciliation bill. Republican lawmakers…felt betrayed by Biden’s comments. The GOP group met virtually on Friday to regroup. Shortly thereafter, Politico reported that Sen. Bill Cassidy felt “blindsided,” Sen. Rob Portman was “pissed and disappointed,” and Sens. Mitt Romney and Susan Collins were “particularly incensed.” They had not come away from their meetings with the president thinking he would explicitly tie the two pieces of legislation together.
On Friday, the White House scrambled to control the fallout, deputizing top administration officials to patch things up with Republicans on the Hill. When that proved insufficient, Biden himself began working the phones.
Finally, the White House issued a rare Saturday afternoon statement in which the president admitted that he messed up.
The statement seems to have done its job, with Republicans taking to the Sunday shows yesterday to make clear Biden’s comments were water under the bridge.
With Republican negotiators appearing once again to be firmly in favor of the bipartisan deal, Democratic leaders will now embark on a balancing act of their own, convincing progressives to vote for an infrastructure bill that’s much smaller than they’d like and moderates to vote for a reconciliation bill that’s much bigger than they’d like.
And on Monday, Senate Minority Leader Mitch McConnell said that Democratic leadership on the Hill should “walk back their threats that they will refuse to send the president a bipartisan infrastructure bill unless they also separately pass [the larger reconciliation bill].” Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi are unlikely to budge.
On The Floor
The Senate is out until July 12. The House is in and will vote this week on a resolution to establish a select committee to investigate the January 6 attack on the Capitol building. The move comes after Republicans rejected a bill that would have established an independent, evenly divided commission to probe the riot and events surrounding it.
Members will also vote on legislation this week to remove Confederate statues and symbols from the Capitol building. It would also remove the bust of former Chief Justice Roger Brooke Taney—who wrote the Dred Scott decision ruling that black Americans were not citizens—from display in the Capitol. Under the measure, the bust would be replaced with one of Thurgood Marshall, who was the first black Supreme Court justice.
Key Hearings
The Select Subcommittee on the Coronavirus Crisis will meet on Thursday to discuss vaccine hesitancy and how to build trust with the public. Information can be found here.
The Committee on Homeland Security will hold a hearing at 9:30 a.m. on Tuesday with FEMA Administrator Deanne Criswell to discuss FEMA’s preparedness for future crises. Information and livestream here.
The acting chief information officer for the Defense Department will be testifying in front of the Subcommittee on Cyber, Innovative Technologies, and Information Systems (Committee on Armed Services) at 4 p.m. on Tuesday. Information and livestream here.
Of Note
Iranian-backed militia groups vow revenge on recent U.S. airstrikes
Yuval Levin says smart things about Congress and the infrastructure deal
Our own Declan Garvey on former President Donald Trump’s return to the stage of political rallies
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