Put Congress back in the driver’s seat for international tax rules

President Joe Biden and Treasury Secretary Janet Yellen are in a predicament.

In 2021, they put the cart before the horse when they agreed to a global tax deal with more than 130 countries, without congressional approval. At the time, Treasury officials seemed to believe they could take their global tax deal to Congress, show how many countries had agreed to it, and Congress would get on board.

But that hasn’t happened. Other countries have been slow to move forward with their own adoption of the rules, and it seems unlikely the incoming Congress will be interested either.

Could this have been avoided? Almost certainly — if Congress had maintained its constitutional authority over international tax policy.

How Congress Surrendered Its Tax Authority

Over the course of American history, Congress has delegated numerous constitutional powers — from declaring war and imposing tariffs, to setting monetary policy and regulating industries. Now, international tax policy can be added to the list.

It began with the 2017 Tax Cuts and Jobs Act’s overhaul of U.S. international tax rules and the subsequent trade spat over foreign digital services taxes. Pressure began to build in the global system, creating an opportunity for a multilateral discussion.

Bipartisan concern in Congress about foreign digital services taxes prompted the U.S. Treasury Department to engage with other governments at the Organization for Economic Cooperation and Development (OECD) to develop common minimum tax rules (that could coexist with the U.S. approach) and rewrite the rules determining where multinational companies pay taxes.

As negotiations progressed, it became clear to former Treasury Secretary Steve Mnuchin that the forthcoming policy would not be agreeable to Congress. Negotiations stalled in 2020, as the U.S. election was expected to shift the dynamic in Washington.

And the dynamic did shift. The Biden administration, with Democratic majorities in both houses of Congress, was emboldened to push its own preferences for a global minimum tax and a broader rewrite of international tax rules. Treasury Secretary Janet Yellen put pressure on multiple countries to agree to the deal, and it was eventually reached in October 2021.

The problem: The Constitution provides Congress, not the executive branch, with the legislative initiative on tax policy. Additionally, it tasks the Senate with providing advice and consent to treaties, including tax treaties, requiring a two-thirds majority vote of approval. Because Congress wasn’t in the driver’s seat (or even in the car), the fate of the global tax deal is now in limbo.

Restoring Congressional Authority

To be fair, international negotiations are tricky, and having negotiations between foreign jurisdictions and 535 members of Congress (or even just congressional committees) would get chaotic quickly. So, what would restoring congressional authority over international tax policy look like?

Conveniently, there is already a process that facilitates a meaningful congressional role in international affairs: Trade Promotion Authority (TPA). This policy gives the president the authority to negotiate trade agreements with other countries, but with congressional constraints. Congress sets the negotiating objectives the president must follow and requires the president to consult with Congress as negotiations progress. Once a trade agreement is made, Congress can then either approve or reject it without the possibility of amendments.

TPA does not guarantee a trade agreement will be approved. While the U.S.-Mexico-Canada Agreement passed through this process during the Trump administration, the Transatlantic Trade and Investment Partnership and Trans-Pacific Partnership did not.

TPA does, however, change the dynamic between the executive branch and Congress, avoiding what has become a lack of coordination and transparency between the institutions.

Opportunity in a Divided Congress

At the end of 2022, Congressional tax writers sent a bicameral letter to Yellen saying the Biden White House has “routinely made commitments in the OECD negotiations it has no authority to fulfill.” They’re right — and we should hope this is step one in Congress positioning itself as tax leader in the new year.

In a divided Congress, where bipartisan legislation will likely be rare, restoring Congress’s international tax authority is a place of common ground. Both sides of the aisle may disagree on what tax policy should look like, but they should agree that Congress, not the executive branch, should be the one to make the call.

The success or failure of the global tax deal — and indeed, the stability of U.S. international tax policy — rests on Congress reclaiming its constitutional role. 

Daniel Bunn is president and CEO of the Tax Foundation, a think tank in Washington, D.C.