Three moderate House Democrats are urging party leaders to "pause" a key piece of President Biden's tax plan that would raise the minimum rate that U.S. corporations pay on their overseas income.
In a letter to House Speaker Nancy Pelosi, D-Calif., and House Ways and Means Chairman Richard Neal, D-Mass., the lawmakers said they wanted to wait and see how other countries implement a new global agreement that would establish a 15% minimum rate on multinational corporations, regardless of where they're headquartered. That deal, struck this month by 136 countries and jurisdictions, could take years to enact worldwide.
The centrist Democrats warned that otherwise, a plan from the tax-writing House Ways and Means Committee to raise an existing levy on companies' foreign earnings – known as the global intangible low-taxed income (GILTI) rate – would hurt American firms. A plan released last month called for raising the GILTI rate to 16.5%, from 10.5%.
"I would encourage Leadership to pause on moving forward with GILTI and international tax changes at this time," the letter said. "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. While well-intentioned, the GILTI changes as proposed would potentially reduce American competitiveness with their foreign counterparts and result in American job losses."
The letter, which was first reported by Politico, was signed by Reps. Tom O’Halleran of Arizona, Lou Correa of California and Henry Cuellar of Texas, all of whom are members of the New Democrat Coalition.
"These new rules in the Ways and Means draft would allow other countries to take advantage of our rules, and harm U.S. companies," they added. "If we wait, it will allow Congress the opportunity to adjust the implementation of the policy based on how G-20 countries write their own GILTI regimes."
The global tax deal, endorsed by finance ministers from the Group of 20 nations, is designed to target corporations that employ a litany of tactics to reduce their tax liability, often by shifting profits, and revenues, to low-tax countries such as Bermuda, the Cayman Islands or Ireland, regardless of where the sale was made. The practice by American and foreign multinationals costs the U.S. tens of billions of dollars each year, according to the Treasury Department.
The agreement calls for a 15% minimum rate on companies with annual turnover above 750 million euros, or about $866 million.
The OECD estimated the agreement, which is signed by 136 countries and jurisdictions, will reallocate $125 billion of profits from around 100 of the world's largest and most profitable multinational corporations to countries worldwide, thus "ensuring that these firms pay a fair share of tax wherever they operate and generate profits."
Democrats are counting on using the revenue generated by the tax increases on companies' overseas profits to help pay for their sweeping tax and spending bill. Eliminating the GILTI increase would leave Democrats with less money for the package, which aims to dramatically expand the social safety net.
The GILTI rate increase and other international tax changes would generate about $300 billion in new revenue, according to estimates from the Joint Committee on Taxation.