Rep. Kevin Brady, who played a leading role in passing the sweeping Republican 2017 tax cuts, said companies will move overseas if the Biden administration succeeds in implementing its tax proposals.
Brady, the top Republican on the powerful Ways and Means Committee, told the Washington Examiner during an expansive interview that the Democratic tax agenda would have dire repercussions for the country. He said that it would signal a return to the “old days” of the tax code when corporate inversions were grabbing headlines.
The Texas Republican said that “without question,” there will be a new wave of corporate inversions if President Joe Biden follows through on hiking the corporate tax rate from 21% to 28% (the 2017 tax cuts lowered the rate from 35%). Biden has also proposed raising the top individual income tax rate to 39.6% and taxing capital gains for households making more than $1 million as ordinary income.
Brady also said there will be more long-term decisions by companies to move their research and development, their intellectual property, their manufacturing, and their headquarters overseas.
Corporate inversions are when a U.S. multinational company merges with a smaller company in a lower-tax country to establish residency there and reap the rewards of the lower tax rates without significantly changing its operations in the United States.
In the years leading up to the 2017 tax cuts, corporate inversions were fairly commonplace. Dozens of companies merged with foreign associates and ended up paying lower taxes. In 2014, for example, Burger King merged with Tim Hortons and became a subsidiary of Canada-based Restaurant Brands International.
While the Biden administration has asserted that the GOP tax cuts, referred to as the Tax Cuts and Jobs Act, incentivized offshoring, proponents of the tax overhaul say there is no tangible evidence to support that assertion. Republican fans of the tax cuts said these inversions were a key motivation for the tax legislation, which slashed the corporate tax rate and overhauled taxation of foreign profits.
Brady, who has served in Congress for more than two decades and plans to retire after this term ends, said that the corporate tax policy proposals pushed by Biden could be deja vu.
“You’ll see a return to where any time an American company is acquired by a foreign company, or even the other way around, it will likely be headquartered overseas because the tax code tells them that’s the best place to do it,” Brady said. “We’ll see without question a return to those days.”
“At the end of the day, this is more than just a tax grab, it’s more Washington control of your earnings, your work, your thrift, and your investment,” he added.
The Tax Foundation, a nonpartisan think tank that generally supports lower taxes, found that the 2017 tax cuts ended inversions.
Biden’s American Jobs Plan pitch also calls for raising the global intangible low-tax minimum tax from 10% to 21%, which the administration has championed as a way of further guarding against inversions and offshoring. The GILTI tax was created as part of the 2017 tax cuts and intended as a measure to prevent inversions and other methods of eroding the U.S. corporate tax base.
Republicans and Democrats are struggling toward an agreement on a bipartisan infrastructure package and have reportedly hit a rough spot in negotiations.
Meanwhile, Democrats plan to push through a multitrillion spending package inspired by Biden’s proposals without Republican support using a process called reconciliation. Democrats will have a lot of negotiation to do with lawmakers for both bills, including with the centrist and liberal factions of the party, given that the Senate is evenly split and they can’t afford to lose even one member’s support.
Biden has additionally pushed for a global minimum tax, the notion of which has now received support from more than 130 countries part of the Organization for Economic Cooperation and Development negotiations. The Biden administration has touted the agreement as a way to help stop inversions, the formation of tax havens, and a so-called “race to the bottom,” in which countries compete with one another by slashing their taxes to attract investment.
The countries have agreed, in broad strokes, to a global corporate tax rate of at least 15%, although the proposal has a long way to go before it would be effective, as the agreement is more of a framework than a working plan and lawmakers in the individual countries will also have to greenlight it. There are also a few notable holdouts in Europe that could throw a monkey wrench into the plan.
Ireland, Hungary, and Estonia are among the most important of a handful of countries that will need to sign on in order to implement the agreement as the European Union will have to agree unanimously to the proposal for it to be implemented. Earlier this month, Irish Finance Minister Paschal Donohoe met with U.S. Treasury Secretary Janet Yellen about the push, although afterward said his country is still not ready to commit to the plan.
Brady said that it’s “premature” to assume that the agreement on a global minimum tax will actually come to fruition or that Congress would approve of it. He said that there are “numerous barriers” to the plan that he thinks have been a bit glossed over.
“All of this is coming about because President Biden is insisting that America hike its taxes so high [that] we’re uncompetitive with the rest of the world,” the Texas Republican said.