The House Ways and Means Committee's March 10 hearing on the President's Budget with Treasury Secretary Janet Yellen largely focused on the OECD-led global tax agreement that Republicans have long targeted for scrutiny. Democrats and Sec. Yellen defended US participation in the agreement and said it would 'level the playing field' for multinational companies.

Chairman Jason Smith (R-MO) said in an opening statement, "President Biden's global tax surrender to foreign governments will make it better to be a foreign worker or business than an American one." Ranking Member Richard Neal (D-MA) focused on Democratic achievements generally and said, in contrast to the President's FY 2024 Budget proposal released on March 9, "We have yet to see any budget plans from their side, and not to mention, the Republicans' first bill of the Congress not only protected wealthy tax cheats but also added $114B to the deficit."

In response to comments by Rep. Ron Estes (R-KS) that Congress is not in favor of the OECD-led deal and Democrats in control of the last Congress wouldn't enact Pillar Two compliance provisions, Sec. Yellen said her understanding is some members didn't want the US to go first in implementing a 15% minimum tax. However, now that the EU has adopted it and other countries like Japan, the UK, and Singapore are moving forward, the issue of the US going first no longer exists, she said.

Rep. Kevin Hern (R-OK) asked about the analysis requested by congressional Republicans of the effects of Pillar One and Pillar Two on the US fisc. Sec. Yellen said the Budget presented estimates of the impact of Pillar Two, which Treasury urges congressional adoption of. She said other nations have taken steps toward doing so and it's a "huge positive for the United States."

Rep. Claudia Tenney (R-NY) asked how Treasury has the authority to negotiate a tax agreement with the OECD without consultation with Congress. Sec. Yellen said there have been staff briefings between Treasury and the Committee and she has had conversations with the chair and ranking member. She said Pillar Two is "something that cedes no taxing rights." Tenney said Treasury didn't fight for fair treatment of GILTI and CAMT in the negotiations and asked, "Why are other foreign entities and countries in the agreement allowed to tax our US-based companies?"

Rep. Randy Feenstra (R-IA) said Congress and companies have been "sounding alarms" about Pillar Two since model rules were released in December 2021, and there are concerns about how it was negotiated and what was agreed to. He said, under the agreement, nonrefundable tax credits can bring companies' effective tax rates below the 15% minimum, and US tax laws provide many nonrefundable business credits like the R&D credit. Other countries like the UK were able to protect their own R&D credit in their negotiations, and he asked why Treasury did not negotiate similar rules to protect the credit.

Rep. Darin LaHood (R-IL) said it is his understanding that Pillar One negotiations have stalled, meaning digital services taxes (DSTs) could spread throughout the world. He said Treasury has not sufficiently communicated with Congress or provided analysis about the effects of Pillar One. Sec. Yellen repeated that Treasury has consulted with the Committee, including at the staff level. She said the US stands to gain substantially under Pillar One and will get increased taxing power as a large market jurisdiction. "However, there are also provisions on which we will lose and it's a very fine balance. Zero is certainly a possibility with respect to revenue and there remain significant disagreements in the Pillar One negotiations," she said. "Until those are resolved we can't do the analysis that you want. But what we have said is that the likely impact on US revenues, while it could be slightly positive or slightly negative depending on the details, it is not likely to be large."

Under questioning from Rep. Lloyd Doggett (D-TX) about Republican suggestions that the global agreement would benefit other nations, Sec. Yellen said nations participating in the agreement would be forced to raise their minimum tax on their multinationals up to 15% on a country-by country basis. For countries that fail to enact the tax, there is an enforcement mechanism by which the United States or other countries would impose a top-up tax.

Materials from the hearing are available here.

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