Washington Insider-- Wednesday

DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

USDA Seeks Input On Climate Change Efforts

USDA is requesting public comment on four areas of USDA policy: Climate-Smart Agriculture and Forestry; Biofuels, Wood and Other Bioproducts, and Renewable Energy; Addressing Catastrophic Wildfires; and Environmental Justice and Disadvantaged Communities.

The request does not offer any potential actions on the part of USDA in these areas nor does it discuss a carbon bank which has been touted as a potential action or specifically the use of the Commodity Credit Corporation (CCC) authority for any of efforts.

USDA has set a 45-day comment period on the request and it is not clear whether they will allow more time for public feedback given the breadth of the information they are seeking.

The attention on climate change actions at USDA is clearly rising as the situation is a government-wide focus, and one that USDA Secretary Tom Vilsack has spent a considerable amount of time focusing on in his initial time in office.

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Japan May Impose Safeguard Tariffs On U.S. Beef

Japan may impose safeguard tariffs on imports of U.S. beef since the fiscal 2020 volume is expected to have gone above 242,000 metric tons with fresh trade data due to be released Wednesday, according to Japanese media reports.

The tariff would rise to 38.5% for one month from a current mark of 25.8%. The action would trigger consultations between the two countries within 10 days of the tariff being imposed, with reports signaling those consultations would be to adjust the applicable safeguard trigger to a higher level.

Data for Japan's fiscal 2020 (began April 2020) had U.S. beef imports at 233,112 metric tons at the end of February.

While not commenting on whether the tariffs would be implemented, Ag Minister Kotaro Nogami said any rise in fresh, chilled and frozen U.S. beef will “not likely have a major impact on consumers,” noting that any increase would only be in effect for 30 days.

The last time Japan imposed the safeguard tariffs on U.S. beef was in August 2017.

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Washington Insider: Global Tax Deal Considered

Bloomberg is reporting this week that Treasury Secretary Janet Yellen is working with her counterparts around the world to forge an agreement over a global minimum tax on multinational corporations to help pay for its emerging domestic agenda.

Bloomberg says the effort involves “a fraught and challenging global negotiation of tax laws,” but if it succeeds, could prove one of Yellen's biggest policy legacies and could also prove central to Biden's presidency.

The $1.9 trillion stimulus signed into law last week was financed completely by additional federal borrowing. But the administration seen as searching widely for ways to minimize reliance on taxes for other big-ticket priorities such as the massive infrastructure and jobs package being discussed by White House officials and congressional Democrats.

A key source of new revenue being discussed is corporate taxes, which President Trump cut sharply cut in 2017. Although President Joe Biden has not proposed reversing the Trump's cut in the corporate tax rate from 35% to 21%, he has said he will aim to raise potentially hundreds of billions more in revenue from big businesses.

At the same time, tax experts, business groups and Republican lawmakers worry that raising the rate could damage U.S. competitiveness. Countries around the globe have both recently and over the past several decades joined the United States in reducing tax rates to attract corporate investment – a trend some economists see as a destructive "race to the bottom."

"It's a little like the Paris climate accord, every country thinks it can steal business from others by lowering taxes. The main beneficiary of that race has been the richest multinational corporations," Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University and mentor of Yellen's said.

Yellen is now seen as working to curb the trend through an effort at the Organization for Economic Cooperation and Development in which more than 140 countries are participating. The goal is for countries to agree in principle to a minimum corporate tax rate—likely to be nonbinding – that would make it harder for multinational corporations to play countries off each other by threatening to leave.

At this time, Yellen's efforts face myriad skeptics who worry the push could encourage further tax shifting to countries outside the OECD agreement, or lead the United States to make concessions that will hurt its competitiveness. This group includes the U.S. Chamber of Commerce.

"It's just a money grab from the Europeans, and we should not let them do it," said Douglas Holtz-Eakin, president of the center-right American Action Forum and a former director of the Congressional Budget Office. "My big concern is that—as part of their desire to be on a 'let's be friends' parade – the administration will give away too much.”

Over the past four decades, industrialized nations around the globe have dramatically slashed businesses taxes, especially in industrialized countries not considered tax havens. The average corporate tax rate globally in 1980 was approximately 40%, but more recently has fallen to about 23% in 2020. About 40% of profits earned by the world's multinational firms were stashed in tax havens in 2017.

Bloomberg calls the worldwide tax declines “startling.” From 2000 to 2018, OECD says 76 countries cut corporate tax rates while 12 countries maintained their corporate tax level and only six increased them. In 2000, more than 55 countries had corporate tax rates above 30%. Now, fewer than 20 do.

For example, the effective U.S. federal tax rate had fallen from about 44% to closer to 29% before the 2017 tax law was passed, according to Goldman Sachs. After that cut, the effective rate paid by the largest Fortune 500 companies fell from 21% to about 11.3%, with 91 of the world's biggest corporations paying zero dollars in federal taxes.

Biden campaigned by promising to enact new federal programs but critics charge that those plans mean “tax hikes that hurt U.S. competitiveness” and encourage multinationals to relocate abroad. This is leading administration officials to argue that the OECD negotiations are crucial to the administration's broader agenda.

One part of the global tax restructuring effort would involve OECD grants of taxing rights over a part of multinational firms' profits where the consumers reside, based on set international formulas that would cover about $100 billion in global tax revenue. To support this approach, there is discussion of an agreement on a floor on international corporate tax rates, based on an OECD global minimum tax rate, probably at around 12% of profits – both highly controversial approaches.

"The OECD's blueprints offer little more than a 'tax haven lite' model where tax havens can keep the majority of profit they siphon from around the world so long as they share some of those profit with the richest of countries," Alex Cobham, chief executive at the Tax Justice Network, said in a statement last fall.

Any agreement reached by the administration about digital tax rules likely would have to be ratified by Congress in a series of highly difficult negotiations, depending on the details of the deal. Critics say these fights could take years for the OECD member countries to pass laws putting the agreement into effect – if they do so at all. But proponents say the cost of inaction remains too steep, Bloomberg says.

It sees the OECD negotiations as a major early test of the global tax ambitions and it cites Yellen's letter to the G-20, highlighting the global impact of the coronavirus, among other crises. "We have come together to face great challenges in the past. We must do so again."

So, we will see. It is clear that political pressure against sharply increased borrowing to support new programs is increasing rapidly and that the OECD approach could provide some important opportunities. These proposals are extremely important and should be watched closely by producers as they emerge, Washington Insider believes.

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