Sen. Joe Manchin on Friday rejected the idea of imposing a 15 percent global minimum tax on U.S. companies, blowing a big hole in the Biden administration’s campaign to remake the international tax system.
Speaking with West Virginia radio host Hoppy Kercheval, Manchin (D-W.Va.) said he doesn’t support the administration’s plan because other countries have yet to adopt the tax, and he doesn’t want to put American companies at a competitive disadvantage.
“We’re not going to go down that path overseas right now,” said Manchin. “Because the rest of the countries won’t follow, and we’ll put all of our international companies in jeopardy, which harms the American economy.”
“Can’t do that, so we took that off the table,” said Manchin, referring to his closed-door talks with Senate Majority Leader Chuck Schumer (D-N.Y.) over resurrecting their long-stalled reconciliation bill.
Though it’s been overshadowed by other issues, that legislation is critical to the administration’s efforts to comply with the deal. It needs Congress to approve the sort of changes to the tax code that more than 100 other countries have agreed to make.
With Republicans lining up against the plain, the administration’s best chance of doing that is muscling the plan through Congress on a party-line reconciliation vote.
Failing to act now would not only be embarrassing to the administration. It also raises questions about the future of the endeavor, increasing the risk that other countries will walk away from the deal.
Manchin also told Kercheval that he would not support any tax increases as part of a reconciliation package, at least not this month. He wants to first get another inflation reading from the government, and hear more from the Federal Reserve about its own plans to fight rising prices.
The senator said he would be willing to reconsider the issue in September, after lawmakers’ August recess, though that’s so close to the midterm elections that many of his colleagues by then will likely be even more skittish about raising taxes.
In a statement, the Treasury Department said: “The United States remains committed to finalizing a global minimum tax.”
“It’s too important for our economic strength and competitiveness to not finalize this agreement, and we’ll continue to look at every avenue possible to get it done.”
The international agreement is designed to get ahead of multinational companies that for years have avoided taxes by parking profits in overseas tax havens.
One hundred and forty-one countries have agreed in principle to adopt a 15 percent minimum tax on the biggest corporations. Each country, including the U.S., now needs to make changes to their individual tax laws to bring them in line with the accord.
As Manchin was possibly alluding to, Hungary recently blocked the European Union from implementing the plan — a move Republicans cheered. Treasury retaliated by promising to cancel a decades-old tax treaty with Hungary.
EU officials say they are eyeing a workaround that would allow other countries to act despite Hungary’s opposition.
As recently as Thursday, some Democratic lawmakers said they hoped the reconciliation package would include the needed provisions.
“The whole notion of trying to get some global approach where we don’t have counties bidding against each other makes enormous international sense, and I don’t think that’s going to happen without American leadership,” said Sen. Mark Warner (D-Va.), a member of the tax-writing Finance Committee.
Manchin’s stance means lawmakers are unlikely to address the issue this year, which in turn means Republicans would get a much bigger say over the issue should they at least win back control of the House this fall.
They’ve been highly critical of the deal, saying it gives away too much to other countries.
While it’s possible that inaction in the U.S. will prompt other countries to drop out of the agreement, they also may press ahead with the plan — and use it against American businesses.
The way the deal is structured, countries have the right to impose extra taxes on companies that aren’t paying at least 15 percent, either at home or in foreign markets, regardless of whether their home country adopted the agreement.
That’s designed to force recalcitrant countries to go along with the plan — the idea is that if they won’t charge their companies 15 percent, others will do it for them.
“Either way, the tax is imposed on the business — it’s just a question of which government is collecting that revenue,” said Manal Corwin, a former top Treasury official who is now with the tax consulting firm KPMG.
And if other countries begin using that to tax U.S. firms that aren’t paying at least 15 percent, that could prompt Congress to respond.
“Other countries have indicated a willingness to move forward with or without the U.S.,” she said.
“You could imagine a situation down the road where Congress views this as revenue that the U.S. is just leaving on the table for other countries” to tax.