And it doesn’t need the House’s help.
And it doesn’t need the House’s help.
T he GOP may control the House, but it’s likely that will be no help to millions of Americans enduring economic hardship this year. Struggling even to elect a speaker, House Republicans have already shown that their slim majority is fractured, not to mention the fact that Democrats control the Senate. In other words, the chances of Republicans passing any substantive legislation this session are small. If help is going to come for the American economy, it won’t be from the House.
Indeed, the Senate, despite its Democratic majority, may offer Americans more hope for economic relief. Right now, there are several tax treaties waiting for Senate approval. These treaties would help American businesses save billions by removing the risk that other countries would double tax their hard-earned profits, but they have never even been voted on. Why? Because Senator Rand Paul (R., Ky.) is standing in the way. He is concerned about information-sharing provisions included in the treaties that would help the IRS gain information on foreign bank accounts potentially used for tax evasion. He believes that this violates privacy rights.
But the benefits of the treaties far outweigh any potential harm. Tax treaties are agreements that the United States signs with other countries to reduce the risk that American businesses will have their profits taxed twice by each country. The United States has ratified over 60 such treaties, to the great benefit of American businesses, who can use the money that they save to reinvest in the United States. The treaties also reduce the costs of foreign businesses entering the U.S. market, providing Americans with many good-paying jobs. In short, tax treaties are a win-win for both the U.S. and the countries we sign them with.
Despite these economic benefits — and ignoring the fact that the information-sharing provisions he is concerned about are already enshrined in U.S. domestic law through the FACTA (Foreign Account Tax Compliance Act) regime — Senator Paul has placed a hold on the treaties, meaning the Senate needs to have a cloture vote to consider the treaties if the hold is not lifted. As a result, some of these treaties have been sitting on the Senate floor for over a decade. The Senate has yet to vote on agreements that have been signed with Chile (2010), Poland (2013), Hungary (2010), and Croatia (2022).
Chile is the most advanced economy in South America, and the three others are developed European economies. These are markets that U.S. businesses want to enter, but they can’t without the risk that their profits will be double taxed.
Moreover, these treaties would lessen the ability of the IRS to conduct harmful audits on American companies. Without a tax treaty, whenever the IRS increases a company’s U.S. income for an internal transaction with a foreign subsidiary, it’s up to the company to negotiate with the revenue agency in the other country to accept the IRS’s audit result to avoid double tax. This rarely goes well, and the result is that these companies end up overstating their total income and paying more than their fair share of taxes.
Tax treaties solve this difficulty for American businesses operating at home and abroad by allowing them to access the Mutual Agreement Procedure (MAP) — a critical tool that enables both countries to negotiate over the proper amount of tax owed in each country. It creates essentially a zero percent risk of double taxation. This is just one of the many benefits that tax treaties provide.
Decade-long delays in treaty approval send a signal to foreign nations that the U.S. is not open for business. If we want to strengthen the U.S. economy, that’s not a signal we should be sending. The economy is not a zero-sum game, and these treaties help businesses and citizens in both countries. Congress looks to be heading for gridlock, but by simply ratifying the tax treaties that have already been signed by past presidents, the Senate can unilaterally provide tax relief and tax certainty to many U.S. businesses.