The global compact, a long-standing goal of Treasury Secretary Janet L. Yellen, would introduce a 15 percent minimum tax on large multinationals to stem decades of declines in corporate tax revenues collected by Western governments. The Biden administration said the proposal is necessary to ensure governments can fund social services and avoid a mutually damaging “race to the bottom” by nations to lower corporate tax rates to attract businesses. However, those efforts have been strongly opposed by Republicans, who say the new rules contain loopholes that will hurt American firms’ ability to compete internationally.
Yellen pushes for new global minimum tax
The deal appears to be in jeopardy because of the roadblocks in Europe and in Congress. That momentum is self-sustaining: several Hungarian officials in recent days have pointed to opposition to the plan among Republican lawmakers as a reason for Hungary to wait, and American opponents of the plan have in turn pointed to opposition to the effort in Europe. perpetuating an impasse that the White House has been unable to resolve.
“We consult with Republicans all the time. There is 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 the lower the taxes on labor and business, the more it helps competitiveness.”
The extent of the GOP’s collaboration with Hungarian officials was not immediately clear. GOP MPs Adrian Smith (Neb.) and Mike Kelly (Pa.), top members of the House Ways and Means Committee, sent a letter to the Hungarian ambassador last week praising that country for rejecting the global tax deal. The letter was published by Hungarian media and later confirmed by lawmakers’ spokesmen, who did not publish it on their congress websites or social media pages. Spokesmen for both lawmakers said they have had no contact with Hungarian officials beyond the letter. Tax opponent Grover Norquist also published a letter in June praising Hungarians, but said in an interview that he had not lobbied individual Hungarian lawmakers. Sen. Patrick J. Toomey (R-Pa.) also commended Hungary’s stance, although an aide to Toomey said the senator did not meet with Hungarian officials. Toomey has met with officials from Britain, France and Ireland to build opposition to the deal, the adviser said.
US conservatives have forged close ties with Orban’s political movement in recent years, hailing Hungary as a bastion of traditional Christian values opposed to immigration, same-sex rights and what the right calls “awakened” liberalism. Fox News host Tucker Carlson broadcast from Budapest for a week last summer, meeting with Orban and praising his government. “If you’re interested in Western civilization, democracy and families, and the horrific attacks on all three things by the leaders of our global institutions, you should know what’s happening here,” Carlson told viewers.
Former Vice President Mike Pence spoke at a conference on “family values” and demographics in Hungary last fall, and the Conservative Political Action Conference held a meeting in Hungary in May. Former President Donald Trump has made a formal endorsement for Orban ahead of Hungary’s elections this year, which Orban’s party won more easily than expected.
“The Hungarian government is desperately looking for common themes with the US Republicans because Hungary’s international standing in the West has never been worse. … Another issue is the abolition of this global minimum tax,” said Peter Kreko, the director of the Hungary-based research and advisory institute for political capital policy, in an interview. “They think the Republicans will come back in the midterms and then in the next presidential election.”
The tax proposal consists of two components – an overhaul of how large multinational companies, particularly digital companies, are taxed and where they owe taxes; and a separate minimum taxation agreement. Details of the digital tax treaty, which many experts believe will require two-thirds support from Congress to change US treaties, have not been proposed. European and American leaders are hoping to ratify the global tax minimum promptly, and the Biden administration has argued that it can approve the part of the deal through the budget voting process that allows Democrats to pass certain laws with just their slim Senate majority to bid farewell and bypass all Republican filibusters.
But Democrats are only promised control of the Senate for a few months before the midterm elections this fall, and it’s all but certain that Republicans would thwart the minimum tax plan if they regained control of Congress. Still, Europe’s inaction is fueling the reluctance of some American officials to overhaul the US tax code. General Electric lobbyist Lisa Wolski said at a conference Last month that according to the Tax Notes, it made no sense for the United States to increase its global tax rate before other countries introduced their own minimum taxes. Some congressional Democrats have expressed similar concerns as they negotiate a reduced economic package being pushed by the Biden administration, according to two people who have been briefed on the ongoing talks and spoke on condition of anonymity to describe private discussions.
With progress stalling in Washington, Republicans have sought to end 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 US tax laws can only be changed through action by Congress.
“We question the prudence of the entire world moving towards a system that forces countries to relinquish sovereign tax sovereignty,” the letter reads. The letter ends by saying, “We would like to make an offer for a direct dialogue with Republicans in Congress as they consider Hungary’s position on the global tax treaty.”
The comments were widely cited by Hungarian officials trying to thwart the tax deal. Balazs Orban, Political Director of the Hungarian Prime Minister and Member of the Hungarian Parliament, pointed them out in a recent Facebook post. “It is good to see that we are not alone,” said Balazs Orban.
Foreign Minister Szijjarto also said on Facebook: “Republicans in the United States oppose this law. Just yesterday we received a letter from two Republican representatives from the Republican leaders on the House Tax and Trade Policy Subcommittees expressing their appreciation for our 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 attacked the GOP for working with the Hungarian government.
“I’m not surprised that Republicans will do anything to defend large multinationals, even if it means working against the interests of the U.S. government to work with a foreign government,” said Frank Clemente, tax researcher at Americans for Tax Fairness, a left-wing group. “Their patriotism evaporates when it comes to protecting tax loopholes for multinational corporations.”
G. William Hoagland, senior vice president of the Bipartisan Policy Center and former Republican staff director of the Senate Budget Committee, added: “From the beginning the Constitution was very clear that politics ends at the water’s edge. When we engage with individual lawmakers, it’s about who is speaking for the United States government.”
But other tax experts have defended GOP officials, arguing that their efforts reflected long-standing conservative concerns about a complicated and cumbersome new international tax system. They also pointed out that lawmakers from both parties are often in touch with foreign officials about their policy priorities.
“Republicans have serious concerns about this, and as far as they’re working with other people to explain their arguments and support their arguments, I don’t blame them,” said Daniel Bunn, an international tax expert at the Tax Foundation, a center-right -Think tank that has criticized the global tax treaty. “If people have concerns about a policy and need to talk to other people about those concerns, I think there is room for that. There are 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.