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Pillar 1, Pillar 2, and U.S. History

We all know the story. Colonists disguised as Mohawk Indians boarded three British tea ships moored in Boston Harbor and dumped 342 chests of tea into the harbor. The Boston Tea Party was to protest “taxation without representation” – the Tea Act of 1773. (The bill was actually designed to save the faltering East India Company by cutting its tea tax so others could not compete for the American tea trade.) Roll the clock forward and you get the Revolutionary War and U.S. Constitution. Considering the latter, Article I, Section 7 is pretty clear: “All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.”

So will someone explain the Organisation for Economic Co-Operation and Development (OECD), Pillar 1 and Pillar 2 to me?

Let’s review the history. France figures prominently as it advocated for a global minimum tax and, later, imposed on U.S. tech firms a Digital Services Tax (DST). Then-Secretary of the Treasury Mnuchin announces that the United States supports the minimum tax, which gains momentum with the arrival of the Biden Administration. (The left supports a global minimum tax because it is the theoretical solution to problems that have not arisen in the real world, because it thinks that the minimum tax would be consistent with U.S. tax policy, and because it supports big-spending governments.) Meanwhile, the United States attempts stave off DSTs across Europe by opening up the possibility that the United States would share the taxable income of all its largest, most successful firms with other governments. Enter the OECD which, in the aftermath of its project on Base Erosion and Profit Shifting (BEPS), is searching for a mission.

Thus are born Pillar 1 (the sharing of the tax base of large, successful companies – mostly U.S. firms – for taxation across the globe) and Pillar 2 (the global minimum tax of 15 percent). There are lots of unsavory details to Pillage 1&2 – I mean Pillars 1&2. But in the same way we shield the general public from gruesome homicide scenes, we will leave those to the international tax lawyers. Focus instead on the bottom line.

On the substance, Pillar 1 is intended to allow the international taxation of the domestic profits of large, successful U.S. firms. As drafted, Pillar 2 would permit foreign governments to impose a “top-up tax” on the domestic earnings of U.S. firms. On the process, the Pillar 2 rules were finalized by the OECD without the courtesy of soliciting comment by the public and the Pillar 1 rules are on the same track.

So, there you have it. Unelected Parisian bureaucrats are going to raise taxes on the domestic earnings of U.S. firms.

This has nothing to do with multinationals and “stateless income.” It has nothing to do with tax havens or even tax competition. It has nothing to do with anybody paying their fair share. It’s a straightforward trampling of U.S. sovereignty.

Whatever happened to: “All Bills for raising Revenue shall originate in the House of Representatives”?

Disclaimer

Fact of the Day

The April U-6 (the broadest measure of unemployment) increased 0.1 percentage points to 7.0 percent.