ROME – President Biden and other world leaders on Saturday approved a landmark global deal that seeks to prevent large corporations from shifting profits and jobs across borders to avoid taxes, a demonstration victory for a president who has found raising corporate tax rates easier to sell with other countries than with his own party in Congress.
The announcement at the opening session of the Group of 20 summit marked the world’s most aggressive attempt to prevent opportunistic companies like Apple and Bristol Myers Squibb from sheltering their profits in this crisis. called tax havens, where tax rates are low and where companies often maintain few physical resources beyond an official headquarters.
This is a deal that has been brewing for years, which has been overtaken by the sustained efforts of Mr. Biden’s Treasury Department, even as the president’s plans to raise taxes in the United States for new social policies and programs to combat climate change have not achieved their objective. its promises.
The expected revenues from the international pact are now central to Mr. Biden’s national agenda, an unexpected result for a president who has presented himself more as a deal maker at home than abroad.
The leaders welcomed the agreement, which was negotiated by the Organization for Economic Co-operation and Development with nearly 140 signatory countries. It would impose a corporate tax rate of at least 15% in almost every country in the world and punish the few holdouts who refuse to accept it. The OECD estimates that the agreement will raise 150 billion dollars a year worldwide from companies in tax evasion.
“We have reached a historic agreement for a fairer and more equitable tax system,” Italian Prime Minister Mario Draghi said in an opening speech at the first session of the summit. Other leaders, including Mr Biden, were to give equally enthusiastic praise for the change.
Such a deal was not the main tax promise on Mr. Biden’s campaign agenda when he won the White House. But it has become the centerpiece of Mr Biden’s efforts to raise corporate taxes in his country, to fund a sprawling national program that includes investing in child care and tackling climate change, and to shift the global balance of power to American workers.
But so far, Biden has failed to deliver on his promise to raise the corporate tax rate to 28% from 21%, partially reversing a rate cut signed by President Donald J. Trump, which lowered the rate by 35%. Mr Biden on Thursday announced a new plan to unite Democrats around this agenda, shortly before leaving for Rome, but it did not include a corporate rate hike.
Instead, its framework contained two new minimum taxes of 15%: one on the income of American companies abroad, and one on the profits that large companies report to their shareholders.
He also proposed sanctions for companies that operate in the United States but retain their headquarters in countries that refuse to join the global deal and put in place a similar minimum tax.
The global minimum tax approved by Mr. Biden would be enacted separately by each country, with the aim of eliminating havens with very low tax rates. Companies that still use havens would face tax penalties in the United States.
The national minimum tax proposed by Mr Biden would exclude a few deductions, such as for clean energy, but would otherwise attempt to raise money from companies that have reduced their tax bills through various incentives in the code, such as deductions. for investment.
The Biden administration estimates that these measures, along with other changes to the international portion of the tax code, will generate $ 350 billion in tax revenue over a decade.
Mr Biden said he was confident Democrats would unite behind the framework after months of heated negotiations. But it still hasn’t been passed by Congress, and it’s still unclear whether Mr. Biden has the votes.
Administration officials, who have set themselves a goal of ending the global practice of profit shifting, this week celebrated the international tax arrangements and said they would be important steps towards Mr Biden’s vision. of a global economy where companies invest, hire and reserve more profits in the United States.
But they also admitted infighting between Congressional Democrats had left Mr Biden unable to deliver on his promise to make companies pay their ‘fair share’, disappointing those who pushed Mr Biden to reverse tax cuts. lucrative for companies adopted under Mr. Trump.
The framework omits a wide array of corporate tax increases that Mr. Biden campaigned and pushed relentlessly during the first few months of his presidency. He couldn’t persuade 50 Senate Democrats to raise the corporate tax rate to 28%, 21%, or even a 25% compromise, or remove the incentives that allow some large corporations – like fossil fuel producers – to reduce their tax bill.
“It’s a small, small, small, small step,” said Erica Payne, chair of a group called Patriotic Millionaires that called for higher taxes on corporations and the wealthy, in a statement after the announcement of the Mr. Biden’s executive on Friday. “But it’s a step.”
Business groups have fought the president’s plans to raise corporate taxes, with help from some Democrats in the House and Senate, and they have denounced the increases included in Mr. Biden’s framework. The National Manufacturers Association said in a statement that the national minimum tax would penalize investments and “hurt our industry’s ability to stimulate our economic recovery.”
Infighting among Democrats has also undermined the Biden administration’s strategy to raise $ 700 billion in tax revenue without raising tax rates at all. Plans to invest $ 80 billion to strengthen the IRS and force banks to provide the agency with more information about their clients’ finances have met with stiff opposition from lawmakers, who are about to drop the bank reporting requirement.
The administration continues to negotiate with skeptical lawmakers to find a way to keep IRS policy alive. The Treasury Department said on Friday that even the extra enforcement money for the IRS could still generate $ 400 billion in additional tax revenue over 10 years and said that was a “conservative” estimate.
An administration official said the difficulty in overturning Trump’s tax cuts was the result of Democrats ideologically being a big tent party with a very narrow majority in Congress, where a handful of moderates currently rule. .
In Rome, Mr. Biden’s fight to raise taxes further did not make it difficult to seal the international deal. Heads of state’s decision to commit to putting the deal in place by 2023 looms as the summit’s flagship achievement and Mr Biden’s surest victory in a European shift that also includes a conference on the climate in Scotland next week.
Informing reporters on Friday evening, a senior administration official, speaking on condition of anonymity to preview the first day of the summit, said Biden’s aides believed world leaders were sophisticated and understood the nuances of US policy, including the challenges in passing Mr. Biden’s tax plans in Congress.
The official also said world leaders see the tax deal as an overhaul of the rules of the global economy.
The international tax deal was a significant achievement in economic diplomacy for Biden and Treasury Secretary Janet L. Yellen, who spent much of her first year working to revive negotiations that had stalled. under the Trump administration. To show the United States was serious about a deal, she dropped a provision that would have made it optional for U.S. companies to pay new taxes to foreign countries and stepped away from an initial request for a worldwide minimum tax of 21%.
For months, Ms Yellen has coaxed Irish Finance Minister Paschal Donohoe into backing the deal, which would force Ireland to raise its corporate tax rate by 12.5% ââ- the centerpiece of its business model to attract foreign investment. Ultimately, through a mixture of pressure and encouraging talks, Ireland relented, removing one final hurdle that could have prevented the European Union from ratifying the deal.
Some progressives in the United States say Mr Biden’s ability to meet his end of the bargain was a crucial part of the spending framework bill.
“International business reforms are the most important,” said Seth Hanlon, senior researcher at the liberal Center for American Progress, who specializes in tax policy, “because they are tied to the larger multilateral effort to stop the corporate race. down. . It is so important for Congress to act this year to give momentum to this effort.
Jim Tankersley brought back from Rome, and Alan Report from Washington.