GOP working with Hungarian officers to tank new international tax deal

Placeholder while article actions load

Senior Hungarian officials say they are working with Republican lawmakers in the United States to defeat a global minimum tax backed by the Biden administration, as European and American leaders struggle to enact a groundbreaking international accord targeting multinational corporations.

Peter Szijjarto, Hungary’s foreign minister, said this week that he is taking advice from GOP officials on resisting the U.S.-supported attempt to set an international floor on corporate taxation, although the extent of that communication is not clear. With a right-wing government led by Prime Minister Viktor Orban, Hungary is effectively holding up implementation of the tax deal in Europe, because each country in the European Union has veto power over the bloc’s tax agreements. All other E.U. member countries support the proposal. The United States has not implemented the agreement yet, either, amid a broader standoff in Congress over President Biden’s economic agenda, and some Democrats are cautious about implementing the new international tax rules if the Europeans do not do so simultaneously.

The global pact, a long-standing goal of Treasury Secretary Janet L. Yellen, would establish a minimum 15 percent tax on large multinational firms in an attempt to arrest the decades-long decline in corporate tax revenue collected by Western governments. The Biden administration has said the proposal is necessary to ensure that governments can fund social services and avoid a mutually damaging “race to the bottom” by nations to cut corporate tax rates to attract businesses. But those efforts have been strongly resisted by Republicans, who say the new rules include loopholes that will hurt the international competitiveness of American firms.

Yellen pushes new global minimum tax

The deal appears at risk because of the roadblocks in Europe and in Congress. That dynamic is self-sustaining: Several Hungarian officials have in recent days pointed to resistance to the plan among Republican lawmakers as a reason for Hungary to hold off, and American opponents of the plan have in turn pointed to resistance to the effort in Europe, hardening an impasse that the White House has not been able to resolve.

“We are constantly consulting with the Republicans. There is a constant professional consultation on this issue,” said Szijjarto, a member of Orban’s government, in an interview posted on Facebook. Hungary has one of the lowest tax rates in Europe. “We think that the lower the taxes on labor and businesses the more it helps in terms of competitiveness.”

The extent of the GOP collaboration with Hungarian officials was not immediately clear. GOP Reps. Adrian Smith (Neb.) and Mike Kelly (Pa.), top members of the House Ways and Means Committee, sent a letter to the ambassador of Hungary last week commending that country for rejecting the global tax deal. The letter was released by Hungarian media and later confirmed by spokespeople for the lawmakers, who did not post it to their congressional websites or social media pages. Spokespeople for both lawmakers said they were not in contact with Hungarian officials beyond the letter. The anti-tax crusader Grover Norquist also released a letter in June praising the Hungarians but said in an interview that he has not lobbied individual Hungarian lawmakers. Sen. Patrick J. Toomey (R-Pa.) also commended Hungary’s stance, although an aide to Toomey said the senator has not met with Hungarian officials. Toomey has met with officials of Britain, France and Ireland to build opposition to the deal, the aide said.

U.S. conservatives have built close ties to Orban’s political movement in recent years, hailing Hungary as a bastion of traditional Christian values that stands up against immigration, same-sex rights and what the right decries as “woke” liberalism. Fox News host Tucker Carlson broadcast from Budapest for a week last summer, meeting with Orban and praising his government. “If you care about Western civilization and democracy and families, and the ferocious assault on all three of those things by the leaders of our global institutions, you should know what is happening here right now,” Carlson told viewers.

Former vice president Mike Pence addressed a conference on “family values” and demographics in Hungary last fall, and the Conservative Political Action Conference hosted a meeting in Hungary in May. Former president Donald Trump issued a formal endorsement of Orban before Hungary’s elections this year, which Orban’s party won more easily than had been expected.

“The Hungarian government is desperately looking for common topics with U.S. Republicans, because the international reputation of Hungary in the West has never been worse. … One more topic is to kill this global minimum tax,” Peter Kreko, the director of the Hungary-based Political Capital Policy Research and Consulting Institute, said in an interview. “They feel Republicans will come back in the midterms, and then in the next presidential elections.”

The tax proposal consists of two components — an overhaul of how large multinational firms, particularly digital companies, are taxed and where they owe taxes; and a separate agreement on the minimum tax floor. Details of the digital tax accord, which many experts believe requires two-thirds support from Congress to alter U.S. treaties, have not been proposed. European and American leaders are hoping to ratify the global minimum tax promptly, and the Biden administration has argued that it can approve that part of the deal through the budget reconciliation process that allows Democrats to pass certain legislation with their narrow Senate majority alone, bypassing any Republican filibuster.

But Democrats are assured control of the Senate for only a few more months before the midterm elections this fall, and it is all but certain that Republicans would defeat the minimum-tax plan if they regained control of Congress. Still, Europe’s inaction is deepening reticence among some American officials about overhauling the U.S. tax code. General Electric lobbyist Lisa Wolski told a conference last month that it made no sense for the United States to increase its global tax rate before other countries adopt their own minimum taxes, according to Tax Notes. Some congressional Democrats have raised similar concerns amid negotiations over a scaled-back economic package pushed by the Biden administration, according to two people briefed on the ongoing talks who spoke on the condition of anonymity to describe private discussions.

With progress in Washington stalled, Republicans have sought to kill off the deal’s momentum in Europe as well. In their letter, Smith and Kelly acknowledge that the president retains power over foreign policy and treaty negotiations. But they also say that U.S. tax law can be changed only through congressional action.

“We question the prudence of the entire world moving forward toward a system that forces countries to relinquish their sovereign taxing authority,” the letter states. The letter ends: “We would like to extend an offer for a direct dialogue with Congressional Republicans as you consider Hungary’s position on the global tax agreement.”

The comments have been widely cited by Hungarian officials trying to defeat the tax deal. Balazs Orban, the Hungarian prime minister’s political director and a member of the Hungarian parliament, pointed to them on Facebook in a recent post. “It’s good to see that we are not alone,” Balazs Orban said.

Szijjarto, the foreign minister, also said on Facebook: “Republicans in the United States are against this law. It was just yesterday that we received a letter from the Republican leaders of the House’s taxation and commerce policy subcommittees, from two Republican representatives, in which they expressed their appreciation for us not supporting the global minimum tax.”

A spokeswoman for the Hungarian foreign minister’s office did not respond to a request for comment.

Liberal — and some conservative — critics assailed the GOP for working with the Hungarian government.

“I am not surprised the Republicans are doing whatever they can to defend large multinational corporations, even if it means working against the interests of the U.S. government to work with a foreign government,” said Frank Clemente, a tax expert at Americans for Tax Fairness, a left-leaning group. “Their patriotism evaporates when it comes to protecting tax loopholes for multinational corporations.”

Added G. William Hoagland, a senior vice president at the Bipartisan Policy Center and a former Republican staff director for the Senate Budget Committee: “From the beginning, the Constitution was very clear that politics stops at the water’s edge. When we get involved with individual lawmakers, it’s a question of who speaks for the United States government.”

But other tax experts defended GOP officials, arguing that their efforts reflect long-standing conservative concerns about a complicated and cumbersome new international tax regime. They also pointed out that lawmakers of both parties are frequently in touch with foreign officials about their policy priorities.

“Republicans have real concerns about this, and to the extent they’re working with other folks to explain their reasoning and make the case, I don’t blame them for it,” said Daniel Bunn, an international tax expert at the Tax Foundation, a center-right think tank that has been critical of the global tax deal. “If folks have concerns about a policy and need to talk to other people about those concerns, I think there’s room for that. There’s congressional delegations all the time to talk to foreign officials about things that are going on.”

Andras Petho in Budapest and Tyler Pager in Washington contributed to this report.