Manchin also seems to object now to raising the U.S. tax on foreign earnings that I mentioned earlier from a maximum 13 percent to 15 percent. The tax, known as GILTI (for “Global Intangible Low Tax Income”) targets foreign returns that exceed 10 percent. It was enacted under President Donald Trump to discourage companies from moving facilities to low-tax jurisdictions offshore. It didn’t work. Offshoring under Trump continued at about the same rate as it was during the last four years of President Barack Obama’s administration.
Probably Manchin has been talking to Republicans. Republicans fervently oppose altering GILTI to conform to the OECD’s global minimum corporate tax. Senator Mike Crapo and Representative Kevin Brady, the top Republicans on the Senate Finance Committee and the House Ways and Means Committee, laid out their objections in a September 2021 letter to Senator Ron Wyden and Representative Richard Neal, the Democratic chairmen of those committees. The message boiled down to You’re not the boss of me. “The administration has represented to our global partners that it can unilaterally compel changes in tax law,” they wrote, “a significant infringement on congressional authority.” This is nonsense. Our global partners are well aware that any change in U.S. tax law must be approved by Congress.
Over the long term, Manchin’s objections to the global minimum corporate tax won’t likely prevail, even if the Republicans retake Congress in November. That’s because of an enforcement rule built into the OECD agreement. Countries that adopt the global minimum tax will be able to impose “top-up taxes” on companies that operate in their jurisdiction if the company’s effective tax rate falls below 15 percent in another country. “If a country does not enact the … minimum tax on its resident multinationals,” explained Lily Batchelder, assistant treasury secretary for tax policy, in an April speech, “other countries will apply the minimum tax to those multinationals via their subsidiaries and soak up all the revenue that that the non-implementing country could have collected.… No longer will it pay off to route earnings through daisy chains of subsidiaries in search of the lowest tax rates.”