Moderate Democrats, citing global pact, want ‘pause’ in international tax changes
A trio of House Democrats is asking party leaders to “pause” their plans to raise taxes on big companies’ overseas profits, adding a new complication to Democrats’ negotiations over their next big legislative package.
In a letter to House Speaker Nancy Pelosi obtained by POLITICO, the lawmakers say they first want to see how other countries implement a new agreement to create a global minimum tax on multinationals — something that could be years away.
Otherwise, they write, Democrats’ plans to hike an existing U.S. tax on companies’ foreign earnings, known as GILTI, would put American firms at a competitive disadvantage.
“I would encourage Leadership to pause on moving forward with GILTI and international tax changes at this time,” wrote Reps. Tom O’Halleran (Ariz.), Henry Cuellar (Texas) and Lou Correa (Calif.), all members of the business-friendly New Democrat Coalition.
“We must find a new pathway to ensure that we do not move before the rest of the world on implementing a new GILTI regime,” they said. “While well-intentioned, the GILTI changes as proposed would potentially reduce American competitiveness with their foreign counterparts and result in American job losses.”
Democrats, who can only afford to lose three votes in the House, are banking on hundreds of billions of dollars in tax increases on companies’ cross-border operations to help pay for their reconciliation plan. Delaying those changes in order to accommodate the moderates’ demands would cost Democrats’ money.
At the same time, they may have room to make changes because, as lawmakers pare back their spending plans, they will likely need fewer tax increases to make their budget numbers work.
House Ways and Means Committee Chair Richard Neal (D-Mass.), who was also a recipient of the moderates’ letter, had already dialed back plans to raise taxes on multinationals in response to objections from rank-and-file colleagues.
They had complained the Biden administration’s proposals were not only tougher than what it was asking other countries to adopt, but the U.S. would impose its rules long before others follow suit. While the administration wanted a 20 percent GILTI rate, for example, Neal proposed a 16.56 percent rate in legislation approved last month by his panel.
The U.S. and more than other 130 countries have signed off on a framework to rewrite international tax rules, including creating a new 15 percent global tax rate.
Individual countries still have to write and approve legislation implementing the proposal announced last week. While policymakers hope they can happen by 2023, some experts consider that unlikely.
At a conference this week, a top Ways and Means tax aide acknowledged the moderates’ letter.
“This is feedback that matters a lot to us,” said Beth Bell, staff director of its Select Revenue Measures subcommittee.
“There is a lot of private feedback that we receive on this as well, and I suspect that, before the legislative process on this is wrapped, there will be changes both to the spending side and the revenue raising side of this bill,” she said.
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