Wall Street Journal

Treasury Secretary Janet Yellen has spent more than two years promising foreign leaders the U.S. is committed to a new global deal to raise taxes on large companies. Now Republicans in Congress have a warning for the rest of the world: Don’t believe her.

All 25 Republicans on the House Ways and Means Committee recently co-sponsored a bill that would impose retaliatory taxes on any country that implements the tax rules to which Ms. Yellen has agreed. It targets tech taxes aimed at U.S. firms and the proposed global minimum corporate tax that would be set at 15%. Those are the two pillars of the tax agreement negotiated at the Organization for Economic Cooperation and Development, which Ms. Yellen endorsed in June 2021.

The first pillar lets other countries impose special taxes on multinational tech companies. The second pillar allows a country such as France or Germany to impose a “top-up” tax on an American company if the U.S. firm’s effective global tax rate falls below 15%. We’ve warned from the start Ms. Yellen’s participation in this tax circus is bad policy, bad law and bad diplomacy — and now here we are.

The policy ploy was the Biden Administration could use a global tax increase to blunt the competitive deadweight of its proposed corporate tax increases on U.S. companies. But the OECD resisted setting the minimum tax rate anywhere near the level the Administration sought for the U.S.

European and other negotiators also outfoxed Ms. Yellen by securing favorable treatment for tax credits preferred in Europe while punishing the sort of credits and deductions that Congress traditionally offers U.S. companies. The result is a global tax regime that, if implemented, would make the U.S. even less competitive rather than more so.

Speaking of Congress, Ms. Yellen’s enthusiasm for the OECD deal is an attempt to usurp Congress’s constitutional tax-setting power by outsourcing complex tax-policy negotiations to a diplomatic process. The pillar-one tech tax would require the Senate to approve changes to a raft of existing tax treaties with other governments. Here too the Yellen Treasury tried floating statutory workarounds since it was clear almost from the start that the Senate would not go along.

The Republican bill aims to short-circuit all of this by discouraging other countries from pressing ahead with the OECD plan. The enforcement mechanism would be a retaliatory surtax, starting at 5% and rising to 20%, on corporate and capital income earned in the U.S. by companies and wealthy individuals from countries that impose versions of the pillar-one and pillar-two taxes on U.S. firms.

A tax war could be as bad as the problem it’s trying to solve, but the bill won’t become law given a Democratic Senate and President Biden’s veto pen—and it doesn’t need to pass to work. The point is to warn other governments that Ms. Yellen wasn’t speaking on behalf of America’s tax writers when she approved the OECD deal. Capitol Hill’s opposition has stretched across two Congresses (with new Ways and Means Chairman Jason Smith picking up the baton from predecessor Kevin Brady) and will extend into a Republican Administration if one arrives in 2025.

That’s good news for U.S. companies, and a major diplomatic embarrassment for Ms. Yellen as Congress warns other governments to treat her tax promises skeptically. A Treasury Secretary is supposed to promote policies that boost the U.S. economy instead of searching for gimmicks that punish American firms in the name of raising more tax revenue from overseas.