Can a global tax deal survive a political mess in the US?

Joe Biden celebrated last week later 130 countries agreed to make significant changes to the international tax system, reaching a consensus after new U.S. proposals gave up talks that seemed to have reached a standstill.

But the momentum that had picked up pace since Biden took office threatens to get lost in Washington, where any fiscal deal must secure support in the Senate, where Democrats have control for the slightest of margins.

Will the new tax agreement be passed as a single bill?

It is very unlikely. Any eventual OECD agreement will likely be addressed by Capitol Hill lawmakers in two separate parts. The agreement on a global minimum tax of 15%, known as Pillar 2, will force lawmakers to change national tax legislation.

Giving countries new rights to tax large companies based on where they generate revenue, the so-called first pillar, is likely to be treated as a separate bill, as it alters Washington’s agreements with other countries, which means that the US must alter existing treaties or create new ones.

How many votes in the Senate does Biden need to pass bills?

Pillar 2, which amends U.S. national law, could be passed through the so-called reconciliation process. This can be used by the U.S. Congress once the fiscal year and laws passed that way can clear the Senate with a simple majority. The upper house is divided between 50 and 50 between Democrats and Republicans, and U.S. Vice President Kamala Harris cast the tiebreaker vote.

However, the first pillar, which is likely to require treaty changes, would need the support of at least 60 senators (i.e., 10 Republicans assuming no democratic defections) under arcana. Filibuster rules which apply to most U.S. legislation.

What are Biden’s chances of getting 60 votes in the Senate?

Very slim. Republican senators have lined up criticize the incipient agreement. John Barrasso, the second-oldest Republican in the Senate, earlier this month called the plans “anti-competitive, anti-American and harmful.” Pat Toomey, the top Republican on the Senate’s powerful banking committee, has called the plans “crazy.”

Mike Crapo, the top Republican on the Senate finance committee, also criticized the deal and wrote to Treasury Secretary Janet Yellen to express concern that the U.S. is ceding the right to tax its own businesses in foreign countries.

Can Biden find a way to avoid this?

Possibly, but any attempt to evade the Senate will likely be the subject of technical and legalistic arguments on Capitol Hill.

Manal Corwin, a senior Treasury official in the Barack Obama administration who now works at KPMG, said there could be a way to overturn existing treaties by approving both Pillar 1 and Pillar 2 through the process. of reconciliation.

While under U.S. law, national law and treaties carry the same weight, Corwin said, a provision known as the “last-minute” rule allows new U.S. law to repeal existing treaties. .

Since the agreement would give the U.S. the right to tax some large multinationals with annual revenues in excess of $ 20 billion and pre-tax profit margins of at least 10%, the U.S. tax code would need to be changed, he said. add Corwin, with the effect of annulling some treaties.

“A treaty says‘ we would, if they did, ’and we are repealing it through a legislative vehicle that changes the Internal Revenue Code, which is eligible for conciliation,” Corwin said.

But Brian Jenn, another former Treasury official who has worked in both Democratic and Republican administrations, warned that passing legislation through the reconciliation process was subject to strict rules.

The Senate MP, who advises on the interpretation of the rules and precedents of the upper house, carefully examines efforts to pass legislation using this method. Earlier this year, MP Elizabeth MacDonough, governed that an increase in the federal minimum wage could not be included in Biden’s $ 1.9 million stimulus bill.

A bill “that clearly overturns a treaty” may not be eligible for reconciliation, said Jenn, who is now a partner in the McDermott Will & Emery law firm.

Efforts to overturn treaties using the reconciliation process “would likely offend even Democratic senators” likely to “jealously” guard the upper house’s prerogative, Jenn added.

A European diplomat warned that if the United States used “legal scams” to approve parts of the deal, it could “open up [up] to a concerted political challenge ”in Washington.

What has the Biden administration said about its strategy?

Not much. On Tuesday, Treasury officials said they would need congressional support to approve the new deal and hoped the first pillar would require a treaty. Officials said details were still being worked out and that a detailed plan on how the U.S. would implement the deal would be agreed in October.

Separately, one person briefed on the tax negotiations said any discussion of how the U.S. administration would pass the deal through Congress was “premature.”

“There are still a lot of things that need to be resolved, and that includes how the administration will deal with Congress,” the person said.