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06/23/2021

Richard Samuelson on the Constitutionality of a Global Minimum Tax
Michael Ramsey

At Law & Liberty, Richard Samuelson (California State University, San Bernardino - history): Is a Global Tax Constitutional?  From the introduction:

The Biden Administration has declared its support for a “global minimum” corporate tax rate of 15%.  So long as this is merely a declared goal, it’s a legal nothing, worth no more than the paper it’s written on.  It is worth asking if it could ever be anything more than that? Absent an amendment to the U.S. Constitution, probably not.  ...

According to Article I, section 7, of the U.S. Constitution, “All Bills for raising Revenue shall originate in the House of Representatives.”  That language was part of the Connecticut Compromise between the larger and smaller states. The House of Representatives would be proportionate to population and the Senate would be based upon the equality of states.  The Compromise was a way of ensuring that the larger states did not gang up on the smaller, less powerful ones.  As taxes ought to be made in proportion to population (or wealth, but they had no good way to do that, so they used population) the House of Representatives, being the representative of population, was accorded the right to originate all tax bills.

What does that mean for this case of a global tax rate backed by a treaty?...

Professor Samuelson then describes the 1790s debate over whether a treaty could require the House to spend money (a somewhat parallel issue). He notes that Madison argued it could not:

What if a treaty requires revenue to be spent?  Does the treaty power supersede the provision in Article I, section 7?  James Madison, then a leader in the House of Representatives, argued that a treaty could not spend money without the consent of the House of Representatives. It would only require a bare majority of the House to approve, however. ...

[Madison reasoned that [t]he U.S. has “a Constitution of limitations and checks” that divides power “into three great departments” and “around each of these portions of power were seen, also, exceptions and qualifications.”  In Madison’s view it would be rendering those checks and qualifications moot by reading the treaty power as an unlimited one.  Hence, any treaty that requires money to be spent must also gain the assent of a majority of the House before that spending provision becomes law.  President Washington disagreed with Madison here.   ...  In 1796, however, Washington lost the argument, and since Madison’s day his reasoning has carried the field. 

Thus, applied to the global tax issue: 

Can the U.S. bind itself to a global minimum tax?  With a constitutional amendment, of course, but not otherwise.  Note that Madison’s reasoning in 1796 was only about spending money, and not about tax, although the Jay Treaty did give Great Britain what we now call “Most Favored Nation” status. That status, although it does have to do with tariff rates, is also about the particular rate for a particular country, and not about tariff rates in general.  But if the treaty power is, presumptively, limited even in the case of spending, so much more ought we to conclude that the U.S. government has no right completely to delegate the right to set tax rates via a treaty.  It is hard, probably impossible, to reconcile a permanent abdication of American sovereignty via the treaty power with the very idea of constitutional government itself.

I agree with Madison to the extent of the argument summarized above, but I think Professor Samuelson overreads both Madison and the Constitution.  It's correct that the revenue clause requires the House to originate revenue bills and thus a treaty cannot in itself impose higher tax rates in the United States.  (Aside: the tax treaties that the U.S. commonly enters into are probably constitutional because they generally don't raise revenue; see here.) But that doesn't mean a treaty providing for a global minimum tax would be unconstitutional -- it just means that such a treaty would have to be non-self executing.  That is, it would be an international obligation of the United States to impose the tax, but it would still require implementation by Congress, with origination in the House, to be part of U.S. law. (I discuss this aspect of non-self executing treaties here: A Textual Approach to Treaty Non-Self-Execution, pp. 1643-45).

Professor Samuelson goes on to say:

But an administration might try to follow the precedent the Obama Administration set when it called the Iran treaty an “agreement,” not requiring the assent of two-thirds of the Senate.  ... But if, per settled precedent going back to 1796, a treaty cannot legally take away from the Congress the Constitutional authority to spend money authorized in a treaty, not to mention set tax rates, then, surely, something less than a treaty cannot do so.

I agree, but that doesn't mean the Biden administration can't enter into a non-binding agreement on a global minimum tax.  it just means that such an agreement (like the Obama administration's "agreement" with Iran) isn't binding on the U.S. under international law and isn't part of U.S. domestic law until enacted by Congress.  (See here).