GOP ups the pressure on global tax deal

HIT THEM WHERE IT HURTS: House Republicans are considering a new tactic for undercutting the global tax deal — the power of the purse.

Using the appropriations process to influence policy positions is nothing new, of course.

But it would be an escalation from GOP lawmakers, who also lodged their complaints about the global agreement with yet another senior Biden administration official on Friday.

Ten House GOP tax writers floated the idea on Friday of erasing U.S. funding for the Organization for Economic Cooperation and Development, the Paris-based group that helped develop the global tax deal.

“We are concerned OECD has evolved into a venue that advocates against the economic interests of United States’ workers and business through its efforts to undermine legitimate, pro-growth tax competition,” the Republicans wrote to Reps. Mario Diaz-Balart (R-Fla.) and Barbara Lee (D-Calif.), the chair and ranking member of the House Appropriations subcommittee overseeing the State Department and foreign operations.

Reps. Adrian Smith (R-Neb.) and Kevin Hern (R-Okla.), the chair of the conservative Republican Study Committee were among the 10 Ways and Means Republicans on the letter, which was first reported by Bloomberg Tax.

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TARGETING THAT BUDGET: In hindsight at least, the signs were there that Republicans might take a run at U.S. funding for the OECD.

House Ways and Means Chair Jason Smith (R-Mo.) wrote a letter last month to Mathias Cormann, the OECD’s secretary-general, complaining that America supplies a fifth of the OECD’s annual budget while China provides nothing — and yet, in Republicans’ view, the global tax agreement is a much better deal for Beijing than it is for Washington.

Still, it’s worth noting that funding for the OECD might not even be a rounding error in the federal budget. As the GOP letter on Friday noted, the OECD splits its budget into two parts — the first of which is funded based on the size of the member country’s economy while the second is based on members’ interest in individual projects.

The U.S. currently funds 19.1 percent of the OECD’s Part I budget of 219.6 million euros, or around $236.6 million, meaning the American portion comes out to around 42 million euros ($45.2 million).

Keep in mind: It’s quite possible that Republicans will keep looking for further pressure points against the global tax deal. Smith, for instance, is looking into traveling to Paris to meet with OECD officials on their turf, as Morning Tax reported last week.

DON’T CALL IT A COMEBACK: Katherine Tai, the U.S. trade representative, made the rounds to both the Senate Finance Committee and the House Ways and Means Committee late last week — where she faced questioning about the electric vehicle incentives from last year’s Inflation Reduction Act, among other tax issues.

And when it came to the global tax deal, tax writers pressed Tai about the potential for the return of digital services taxes.

That’s not an idle worry for American policymakers, either. Multiple top officials in Europe — like Bruno Le Maire, the French finance minister, and Valdis Dombrovskis, the EU executive vice president — have suggested that it might be time to take another look at DSTs, because the first pillar of the global tax deal is currently stalled.

Digital services taxes might be making a return closer to home, too.

Prime Minister Justin Trudeau’s government in Canada, which is releasing its budget this week, already has a plan for a DST to go into effect next year — if Pillar One of the global tax deal hasn’t been implemented. (Senior lawmakers from both parties and major business groups are continuing to lobby Ottawa against moving forward with that tax.)

Pillar One, as a reminder, is the part of the global tax deal that seeks to tax large multinational corporations based not on where they’re headquartered, but where their sales are located.

The first pillar evolved from the interest from countries like France and Canada in getting more of an opportunity to tax large technology companies, many of which are based in the U.S.

It would also take a pretty big reversal for governments to start making progress on Pillar One, which leads to Tai’s appearances before Congress last week.

The U.S. trade representative told lawmakers that she wasn’t fully up-to-date on the status of Pillar One implementation and noted that digital services taxes around the globe are currently suspended — but also tried to reassure them that tariff threats could be part of any U.S. response should DSTs reemerge.

The Biden administration dropped plans to impose retaliatory tariffs on a number of countries — like Austria, France, India, Italy, Spain, the United Kingdom — back in 2021, once those countries dropped their digital services taxes after the global tax deal was reached.

But given where Pillar One stands now, it’s easy to how the whole issue could bubble up once more.

Around the World

Financial Times: “UK government expected to offer energy companies windfall tax relief.”

Bloomberg: “Gen Z’s Clean Living Means £14 Billion in Lost ‘Sin Tax’ for UK.”

Reuters: “India removes long-term tax benefits for debt mutual funds.”

Around the Nation

Seattle Times: “WA Supreme Court upholds capital gains tax.”

Associated Press: “Tax the rich? Chicago mayoral hopefuls debate city budget.”

AL.com: “After Oscar attention, will Alabama increase its film tax incentive?”

Also Worth Your Time

Pro Energy: “U.S. eyeing ways to include Europe in electric car tax breaks.”

Barron’s: “Better Hurry to Buy that Tesla. Only a Few Days Left to Guarantee the $7,500 Credit.”

Wall Street Journal: “Yes, You Can Put Your Taxes on a Credit Card. Here’s How to Make It Work.”

Did you know?

Helen Herron Taft’s father was a college classmate of one president (Benjamin Harrison) and the law partner of another president (Rutherford B. Hayes).