The United States would lose over USD 120 billion in tax under the OECD’s global minimum tax, or Pillar Two, according to an analysis by Joint Committee on Taxation.
The Joint Committee on Taxation (JCT) is a non-partisan committee of the United States Congress. In its analysis, JCT considered various scenarios of adopting OECD’s global minimum tax in the US and other countries. Under the current trajectory, JCT estimates the US will lose more than USD 120 billion of tax revenue. Even under the scenario pushed by the Biden Administration, JCT estimates the US will lose almost USD 60 billion.
These estimates do not account for US revenue loss from the almost 50 countries that have already enacted the tax scheme or have announced plans to do so.
Responding to the findings, Finance Committee Ranking Member Mike Crapo, and Ways and Means Committee Chairman Jason Smith, said: “The Biden Administration unilaterally surrendered to the OECD tax cartel by agreeing to a global tax code that will extract more than USD 120 billion in US tax revenue over the next decade – unless Congress also surrenders its sovereignty over US tax policy. This is a lose-lose deal negotiated by the Biden Administration.”
“Even if Congress did implement OECD’s global minimum tax by 2025 along with the rest of the world, the US would still lose tens of billions of dollars, and likely much more if it does not stack another book tax on the shelf alongside the Democrats’ dizzying book minimum tax. Worse, by agreeing to prioritize the OECD’s tax scheme over the Republican-enacted global minimum tax from 2017, the Biden Administration handed each foreign country a model vacuum to suck away tens of billions from our tax base,” they added.
JCT analysis provides five alternative scenarios against a baseline assuming nearly 50 countries (including all EU countries) have already enacted Pillar Two. Under Scenario One, JCT estimates that the US will lose more than USD 120 billion if the rest of the world adopts Pillar Two in 2025, primarily due to countries enacting domestic minimum taxes that will soak up taxes currently collected under the US global minimum tax.
Under the Biden Administration’s preferred path forward (i.e., if the US enacts Pillar Two alongside other tax jurisdictions; Scenario Two), the US will still lose USD 56.5 billion.
According to JCT, additional taxes collected by enacting another US domestic minimum tax and a small increase in profits moving into the US are insufficient to dig out of the more than USD 120 billion hole.
In a scenario (Scenario Three) where none enacts Pillar Two, JCT states that while this scenario estimates no revenue effect, it is a very unlikely path and does not take into consideration revenue already lost from the nearly 50 countries that have already enacted Pillar Two or announced plans to do so.
For academic completeness, Scenarios Four and Five assume that the US is the only additional country to adopt Pillar Two in 2025. Here, JCT notes that not only are these last two scenarios highly unlikely, but also the estimated revenue gains assume the US keeps Democrats’ existing book minimum tax and adopts the OECD’s domestic minimum tax.