03/08/18

To defend tax reform, Trump must nominate an OECD ambassador

(Washington Examiner) -- Created in 1961, the Organisation of Economic Co-operation and Development is a 36-country group designed to promote global economic progress — as conceived by a number of Paris-based bureaucrats.

The organization is exactly the type of entity that President Trump, with his “America First” agenda and mix of skepticism and hostility toward globalism, should want nothing to do with. But rather than disengage from the OECD, it is crucial that Trump defend the interests of the U.S. by nominating a representative to the body.

It has been over 500 days since the U.S. had an ambassador to the OECD, and this vacuum of American leadership is allowing the EU to set international norms and take aim at U.S. sovereignty in an effort to undermine the Trump tax bill at the cost of American business, jobs, and innovation.

The tax reform bill passed by the GOP House and Senate, and signed into law by Trump, has made America competitive again. The bill lowered the federal corporate tax to a globally competitive 21 percent and updated the international tax system so that businesses can now compete and reinvest trillions of dollars in foreign earnings into America. In fact, since the passage of tax reform, the U.S. has been named the most competitive economy in the world, according to the IMD World Competitiveness Center.

The bill also included two new international provisions which implement a “carrot and stick” approach with the aim of incentivizing the location of capital and profits within America, and clamping down on erosion of the U.S. tax base. The stick, known as “global intangible low-taxed income,” or GILTI, imposes a 10.5 percent minimum tax on intellectual property derived income. The carrot, known as “foreign-derived intangible income,” or FDII, provides a deduction of 37.5 percent off the 21 percent corporate rate (for an effective rate of 13.125 percent) for income derived from IP held in the U.S.

In combination with the low U.S. corporate rate, these provisions create a strong incentive for companies to invest and do business in America. It is also why high-tax, big-government European nations hate the tax law and have demanded the OECD review GILTI and FDII in its Forum on Harmful Tax Practices. Even before the Tax Cuts and Jobs Act had been enacted, European countries expressed concern over the law. Some countries have even gone as far as to suggest that the OECD designate the U.S. a tax haven, and it is expected that the EU will launch a legal challenge to the tax law in the World Trade Organization.

This is not the only threat to U.S. sovereignty and competitiveness. EU leaders have also called for a discriminatory, global minimum tax on digital innovators. This tax, which would be predominately aimed at iconic American companies out of Silicon Valley, would be imposed on the digital revenue of tech companies, based on the concern from Europe that companies are paying too little.

Ironically, European nations are trying to undermine U.S. tax law that seeks to clarify the tax base and the very problems the EU digital tax purportedly seeks to address. This is not the first effort the EU has taken to undermine tax competition and American businesses. The European Commission has previously ruled that low tax rates of EU member countries constituted “illegal state aid” and ordered U.S. tech companies such as Amazon and Apple to pay these governments back.

Clearly, challenges to U.S. sovereignty and competitiveness will not end. The U.S. needs an ambassador to the OECD who is well-versed in the TCJA — specifically the international provisions of the law — and can clearly and credibly advocate for and defend the pro-growth policies Trump is putting into place.

Fortunately, some lawmakers are beginning to take notice of the need for an OECD ambassador. Sen. Tim Scott, R-S.C., and Rep. Jim Renacci, R-Ohio, recently released letters urging Trump to consider the need for “a strong and powerful voice defending the United States and U.S.-based companies at the OECD.” This is a welcome first step. At the very least, re-engaging with the OECD by nominating an ambassador will give Trump an opportunity to protect U.S. competitiveness and ensure American jobs, businesses, and innovation have a check against European aggression.

Alexander Hendrie is a contributor to the Washington Examiner's Beltway Confidential blog. He is tax policy director at Americans for Tax Reform.