The Joint Committee on Taxation (JCT) has released a revenue score estimating that widespread implementation of Pillar 2 abroad could cost the U.S. $122 billion if the U.S. does not implement it domestically. The cost estimate is new fodder for a contentious fight between Republicans and Democrats over how Congress and the White House should move forward on international taxes.
The effort from the Organisation for Economic Co-operation and Development (OECD) to drive forward new global minimum tax agreement under Pillar 2 has picked up momentum recently. A growing number of countries appear to finally be making headway toward implementation (see our prior story for the latest on implementation and its impact). The administration missed an opportunity to implement the pact in the U.S. as part of the Inflation Reduction Act and now faces a Republican House that is deeply opposed to both implementation and the underlying agreement.
Senate Republicans requested the JCT revenue score and used it to criticize the OECD agreement. JCT estimated that if the rest of the world moves forward with implementation by 2025 while the U.S. does not, it would cost the U.S. $122 billion over 10 years. If the U.S. implemented it here by 2025, it would reduce that cost to $56.5 billion.
Assuming widespread adoption, the difference between implementing in the U.S.is only $65.5 billion over 10 years. While this is still a significant number, it is much smaller than previous revenue scores for some other versions of international tax proposal, which would have raised hundreds of billions. The Administration has argued that implementation is critical to protecting the U.S. revenue base, and the deal will provide cross boarder benefits and end a race to the bottom with corporate rate. Republicans have said the global agreement is a bad deal for the U.S. and have vowed to fight both implementation in the U.S. and abroad. House Republicans recently released legislation that would impose retaliatory taxes on taxpayers from countries that implement it (see our prior story for more information). The fate of the agreement here in the U.S. may hinge on the outcome of the 2024 elections.
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