Trump Must Approach Global Tax Deal With Scalpels, Not Buzzsaws

President Donald Trump surprised many in the tax community by making the global tax deal a day one issue. His Jan. 20 memorandum gave his Treasury secretary 60 days to recommend interactions with tax treaties and possible protective measures to ensure the minimum tax rules have no force or effect in the US.

That 60-day window is closing. And with the European Union’s tax chief reiterating that the bloc will continue to pursue the global minimum tax—even in the face of large-scale tariff threats from the US—it’s time for the US to put forth a plan or risk creating further chaos in the world’s largest economies.

Governments around the world should ask what the right trade-off in global tax policy is. Cross-border rules should help investment and growth while balancing anti-avoidance objectives and simplicity.

The global minimum tax prioritizes anti-avoidance without a trace of simplicity. And even the US’ own approach to tackling tax avoidance through rules such as the Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income, and others through the Inflation Reduction Act, leave much to be desired.

The rules are widely understood to contribute to tax complexity and uncertainty for large multinationals. This sounds like compliance costs instead of productive investment for multinationals and a barrier to entry for aspiring global companies.

Growth doesn’t come by locking the largest businesses into a set of one-size-fits-all rules and locking out a new wave of entrepreneurs from global markets. Instead, the rules must be rebalanced to allow for dynamic competition across the landscape.

Trump may not have such competition in mind. Instead, his memorandum and comments from Republican lawmakers are focused on preserving US tax sovereignty. This is a worthy line of analysis because the global rules have instituted a type of tax policing of incentives and implementation of the rules themselves.

Tax authorities still have sway over their set of domestic rules, but the minimum tax is designed to undermine dozens of policies that countries previously spent time (and revenue) developing.

That overreach by the minimum tax rules was obvious several years ago. Lawmakers in Washington, D.C., are keenly aware of the way US research and development incentives could trigger additional tax in a foreign country.

The challenge now is taking Trump’s response to the rules and channeling that into a productive outcome. A separate round of the trade war or threats of punitive taxes on foreign companies operating in the US can reopen negotiations on otherwise settled rules.

Without a plan, what happens next is pure economic harm and further weakening of trade and investment ties with US allies.

Instead, the Trump administration could argue for removing the most offensive parts of the rules or other permanent changes that neuter the policy while avoiding a global intrusion into the US tax base. This should spur other governments to rethink how the minimum tax fits with their own domestic priorities.

The EU is already exploring how to simplify its regulatory and tax approach, and Trump’s approach on the minimum tax could encourage the EU to go further in that revision than otherwise.

Policymakers should focus more on facilitating growth and investment than on punitive actions. The outlook for global growth has been disappointing for many years, and the slowdown in cross-border investment identified by the World Investment Report published by the UN should worry policymakers across the world. Even the OECD’s own economic outlook identifies weaknesses in future economic growth.

Trump may not have the solution to this problem—his tariffs actively work to worsen it. But if he can take a pragmatic approach to the global minimum tax that avoids a chaotic outcome, that could be a helpful down payment for the world’s economic future.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

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

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