OECD cannot decide US international tax policy: Columbia law professor

International tax policy of the United States should be set by the United States, not by other countries, David Schizer, Dean Emeritus, Columbia Law School, has said.

Schizer made the statement as part of his testimony before the House Ways & Means Committee Subcommittee on Tax at a July 19 hearing on the OECD’s Pillar Two proposal to impose a global minimum tax on large multinationals.

Schizer said that while the international tax system is complicated, some things are very simple or at least should be.

“First, in the United States, taxes must be imposed by Congress, not the President,” he told the Committee.” “Second, the tax policy of the United States should be set by the United States, not by other countries,” he added.

Schizer said that in joining the Pillar Two agreement, the Biden Administration has strayed from both of these simple principles.

“Proceeding without congressional approval, they have given other countries significant influence over our tax system,” he said. Schizer said that the pressure is all the more inappropriate because the US already has three minimum taxes in place.

Schizer said: “Should we really give the OECD so much influence over these decisions? We are now in the awkward position that the US has one set of minimum taxes, the OECD has another, and these regimes aren’t in synch.”

Highlighting the aggressive nature of the tax proposal, Schizer said: “To see how aggressive this rule is, imagine that you live in Virginia (where you earn a good living) and your daughter lives in California (where she doesn’t earn much money). Obviously, it is appropriate for Virginia to tax you, since that’s where you live and earn money.”

“But should California also be able to tax you through your daughter? Specifically, should California be able to impose a tax on your daughter, which is not based on what she earns in California, but based on what you–who are not a California resident–earn in Virginia? In essence, this is what a UPTR does,” he explained.

Schizer said that the better course is to respect Congress’s constitutional role. “If Congress won’t adopt the Administration’s proposals, the President should seek recourse from voters.”

“This approach – taxation with representation – is the way our democracy is supposed to work,” he said.