It’s Time to Defund the OECD

The new costs faced by US businesses are the direct result of a bad deal dragged across the finish line by the Biden administration.

President Biden’s Treasury Department has been the key driver of the Organisation for Economic Co‐​operation and Development’s (OECD’s) project to create a global tax system that raises the cost of international investment and taxes the most profitable American companies. As the global tax begins to be implemented around the world, it has become clear that the administration negotiated a bad deal for American businesses, their employees, and the US Treasury.

The administration and some Democrats in Congress are now trying to shift blame to Republicans, claiming that by pointing out the structural flaws in the deal, it’s Republicans’ fault that Americans are staring down a costly global tax hike. Republicans are right to criticize the OECD, and as appropriations season gets underway, they should renew efforts to limit US funding of the OECD for projects that raise taxes or otherwise promote government‐​centric policy solutions.

You can read more about the international tax system and the OECD’s two pillar global tax plan in my recent Cato Policy Analysis.

A US‐​Led Effort, a Biden‐​Created Problem

In her testimony before the House Ways and Means Committee in May, Treasury Secretary Janet Yellen characterized the OECD global tax deal as a US‐​led effort and told Congress that “we have pushed our allies” to adopt the deal. While true, this is a remarkable understatement.

For the past three years, administration officials have been waging a campaign to pressure our allies into adopting the new tax rules. They have done this while knowing that the OECD tax hikes are not supported by the US Congress, including some Democrats.

The most public pressure was put on Hungary in the summer of 2022, when the US Treasury canceled a tax treaty with the small European country in what the Wall Street Journal called a “counterpunch against” the country, which had emerged as a vocal obstacle to the global minimum tax deal. This is just one piece of the relentless pressure campaign waged by US officials to push other countries to the bargaining table and ultimately to adopt the global minimum tax system.

Now that some portions of the global tax increase are moving forward without the United States, Treasury officials are beginning to “recognize that US multinationals are in somewhat of a unique situation and face compliance difficulties that a lot of other countries’ multinationals don’t face.” This is because the Biden administration negotiated a complicated new tax system that allows 140 countries to claim new taxing rights on primarily American businesses.

Proponents of the deal in Congress and the Treasury Department have claimed that Republicans’ unwillingness to accept the bad terms the administration has negotiated will make a bad deal even worse. This is a contortion of the facts. The new costs faced by US multinationals are the direct result of the deal dragged across the finish line by the Biden administration.

Budget Inconsistencies

It’s not clear from reading the president’s budget if the administration believes its own rhetoric about the OECD deal being good for the world and good for the United States. President Biden’s fiscal year 2025 budget proposal includes a number of significant tax increases that ostensibly align the United States with the OECD’s global tax deal. For example, the Green Book describes modifications to global intangible low‐​taxed income—the existing US minimum tax—to make it OECD‐​compliant. However, the proposal increases the new minimum tax rate to 21 percent (instead of the 15 percent US‐​negotiated OECD rate). The Green Book also raises the Inflation Reduction Act’s new corporate alternative minimum tax from its 15 percent rate to a 21 percent rate.

These proposals should leave Congress and peer nations around the world with several questions for the administration and how it sees its proposals as consistent with what it’s pushed for at the OECD. Does the administration think that its negotiated minimum tax rates are insufficient? Does the United States think the global minimum tax rates should be 6 percentage points higher (21 percent versus 15 percent)? And why have multiple overlapping corporate minimum taxes in the United States? Does the US Treasury believe the OECD global minimum tax is flawed in some way? There is also nothing in the Green Book to implement Pillar One, the second component of the US‐​negotiated global tax plan. The administration has negotiated a deal it doesn’t seem to believe in fully.

Appropriations Season Presents an Opportunity

Republicans are right to question the value of the global tax deal as negotiated by the Biden administration. As a matter of process, wholesale accepting an international tax increase on American business, negotiated by the president without any congressional input, sets a concerning precedent and undermines Congress’s constitutional role in setting tax policy and advising and consenting to treaties.

The primary message other countries are hearing from the United States is from Treasury officials, like Secretary Yellen, who have an ideological stake in the success of the OECD global tax increases. A louder and more forceful congressional message rejecting the OECD deal could go a long way toward undermining the administration’s pressure campaign for other countries to adopt the OECD rules.

Last spring, 10 House Republicans, led by Rep. Adrian Smith (R‑NE), asked the Appropriations Committee to prohibit US funding for the OECD from being included in next year’s budget. Members who are concerned by the Biden administration–led OECD effort to increase global taxes on Americans businesses should again push to withhold OECD funding—and ultimately US OECD membership—if the organization continues to facilitate implementation of its global tax system.

A more vocally opposed US Congress would help slow the adoption of the OECD system and could help undo the damage that has already been done.