It is well passed time for Congress to take a more assertive role in the ongoing efforts to rewrite global tax rules. The Base Erosion and Profit Shifting (BEPS) proposals drafted by the Organization for Economic Cooperation and Development's (OECD) and approved by the G20 contain numerous provisions, which threaten the competitiveness of U.S.-based companies and the overall American economy. Hearings being held this week in both the House and Senate exploring these serious concerns are a good start, but must be followed with swift action.
Some of the BEPS proposals are innocuous, but many are designed to squeeze international commerce and enable higher taxes in the OECD's never-ending pursuit of greater revenues for already bloated governments. We know the Paris-based OECD's aim is to raid businesses – in particular American businesses – for more tax revenue because their own reports contradict the stated premise of the BEPS project to deal with "eroding" corporate tax bases. The OECD itself acknowledged, “revenues from corporate income taxes as a share of GDP have increased over time.”
The unusual rush to complete the recommendations before more parties could weigh in only solidifies the point.
Among other things, BEPS wants each jurisdiction in which a business operates to be granted unprecedented access to records far beyond that typically required for tax assessments. The fishing expeditions are being undertaken in part so that bureaucrats can later devise new and creative ways to suck even more wealth out of the private sector.
These invasions will have real consequences for workers and consumers. American companies forced to hand proprietary data to governments – like China's – that are known to engage in corporate espionage and advantage their state-owned enterprises will be forced to choose between forgoing participation to vital markets or allowing competitors easy access to the knowledge and techniques which fuel their success. Without adequate safeguards that governments are unlikely to provide, broad information flows could further expose even worker and customer data to hostile foreign governments.
BEPS is rightly seen by many in the U.S. as an effort by foreign governments to raid the coffers of American corporations. The rare requirement under the U.S. worldwide tax system that American-headquartered businesses pay tax on profits earned anywhere in the world, and at rates well above the global norm, provides a strong incentive for businesses to reinvest profits overseas rather than bringing them home. These American companies are now a tax target of opportunity for foreign governments.
Why has the business community – hardly incapable of defending itself – not fought harder against the OECD's efforts?
The Business and Industry Advisory Committee (BIAC), an independent business association, supposedly exists to speak up for businesses and ensure that the OECD doesn't simply put a bunch of tax collectors together in a room and let them draft policies based on their deepest fantasies. Unfortunately, BIAC has been successfully co-opted by the OECD bureaucracy.
At every stage in the process, those positioned to speak on behalf of the business community told any who wished to push back against the boneheaded premise of the OECD's work to sit down, be quiet, and let them seek to placate hungry tax collectors with soothing words of reassurance about their noble intentions and polite requests for minor accommodations.
That go-along-to-get-along strategy has proven a monumental failure.
Much of the blame rests with BIAC's chair, Will Morris. Also the top tax official at General Electric – whose CEO Jeffrey Immelt served as Obama's “job czar” and is a dependable administration ally – and a former IRS and Treasury Department official, Morris is exactly the kind of business representative tax collectors love. He failed to reject the false premise of the OECD's efforts and defend the right of American businesses to operate in markets around the world without excessive and overly invasive burdens.
Right now the OECD's proposals are merely that, though high-tax nations that support limiting competition are already scrambling to implement them. So too are many nations afraid of what the OECD might do if they fail to comply, which is understandable given the organization's history of bullying low-tax jurisdictions through threats of blacklists and sanctions.
The United States has the stature to convince fence-sitters to reject the OECD's efforts, and the only remaining entity both potentially willing and able to stand up for American economic interests is the U.S. Congress.
Congress must ensure the U.S. leads by example. That requires preventing the administration – by invoking the power of the purse if necessary – from doing an end-run around the legislature and unilaterally implementing OECD policy. It also means aggressively defending American economic interests on the global stage and inspiring other nations to follow suit. Congress cannot afford to sit idly by any longer as global tax policy is rewritten by tax-loving radicals.
Quinlan is the cofounder and president of the Center for Freedom and Prosperity (@cfandp).