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The Constitution and the Minimum Corporate Tax Agreement (Part 2)
Michael Ramsey

This is my second post looking at the constitutional aspects of the recently announced international agreement on a global minimum corporate tax (the first post is here).  The first post concluded that the "agreement" in its current form (actually labeled a "Statement" by the participating countries) is not a binding international agreement.  Rather, it's in the nature of a terms sheet or memorandum of understanding -- a nonbinding  statement of agreement on general principles subject to implementation in more specific instruments.  Because it is not a binding agreement, the Statement itself does not implicate the treatymaking power under the U.S. Constitution; rather, for constitutional purposes it is a "political commitment" within the President's executive power in foreign affairs.

This post turns to the constitutional aspects of implementing the Statement.  The Wall Street Journal editorial that prompted these posts seems to recognize (though it does not actually say) that the constitutional problems, if any, may arise in the implementation (I agree).  Of course, that depends on how the Statement is in fact implemented.  But we can explore some alternatives.

The previous post also noted that the Statement contains two distinct projects with two distinct paths to implementation.  First, there will be (it is said) an agreement about the allocation of tax burden that would shift some taxing authority from a corporation's place of business to the corporation's place of sales (called "Pillar 1").  Second, there will be (it is said) a process for achieving a minimum tax rate for the participating countries (called "Pillar 2").

To take the second "pillar" first (because it has caused the most controversy): the Statement does not appear to contemplate that the minimum tax would be implemented through a binding agreement.  The Statement's discussion of the first pillar expressly discusses an implementing convention to be signed and ratified among the participating countries, but its discussion of the second pillar has no such references and indeed the second pillar seems deliberately omitted from the discussion of the implementing convention.  Instead, the Statement says:

The [minimum tax] rules will have the status of a common approach.  This means that [participating] members ... are not  required to adopt the [minimum tax] rules, but, if they choose to do so, they will implement and administer the rules in a way that is consistent with the outcomes provided for under Pillar Two, including in light of model rules and guidance agreed to by the [participating countries].

As noted in my previous post, this sounds like an optional regime in which countries can pass minimum tax rates if they choose.  Even if the Statement creates some general expectation that the participating countries will do so (and I'm not even sure it does that), it overtly refrains from saying that that expectation will be contained in a binding commitment.

True, the Statement next says:

[participating countries will] accept the application of the [minimum tax] rules applied by other [participating countries] including agreement as to rule order and the application of any agreed safe harbours.

This could be construed as a plan for a binding commitment, although given the optional language in the prior section I'm doubtful it should be.  But even if it is, as I read it this is a very limited commitment to respect other countries' minimum taxes if they adopt the approach set forth in the Statement.

As a result, despite concerns expressed in the commentary, it does not appear to me that the minimum corporate tax part of the Statement raises any constitutional difficulties in implementation.  It can be implemented (or not) by the U.S. Congress through ordinary legislation without any international law implications.  That's in accord with U.S. constitutional processes, and there's substantial history of legislation adopted in coordination with other countries without a binding international agreement.

The more interesting constitutional question arises from Pillar 1 (the agreement on allocation of taxable revenue), for which the Statement does contemplate implementation through a formal international agreement it calls the "Multilateral Convention (MLC)."  The Statement specifies that the MLC will be signed and ratified by participating countries -- steps that in international law typically indicate a binding commitment.  Moreover, the Statement contemplates several arrangements regarding Pillar 1 that are difficult to imagine implementing other than through a binding commitment.  For example, it says that affected taxpayers will have access to a dispute resolution process if they disagree with a participating country's allocation.  Although details are not provided, it is difficult to see how this process could be implemented satisfactorily other than through a binding commitment to some form of multilateral arbitration.

Assuming the MLC is presented as a binding commitment, U.S. participation would implicate the constitutional treatymaking power.  Of course, if it were submitted to the Senate as a treaty subject to a supermajority vote for approval, the constitutional treatymaking process would be obviously satisfied.  There might be an additional question whether the MLC could be self-executing or whether implementing legislation would be required pursuant to the Constitution's direction in Article I, Section 7, that "All Bills for raising Revenue shall originate in the House of Representatives."  I have no opinion on that question, but I think if there is a constitutional objection to a self-executing treaty it can be satisfied by a non-self-executing treaty plus appropriate legislation -- see discussion in this article.

The Journal editorial doubts that a treaty could be approved by the Senate in the Senate's current polarized state.  (I'm sure that's true for an agreement on a minimum tax, but as discussed the contemplated MLC likely won't have the minimum tax provisions.)  Could it instead be done by congressional-executive agreement (that is, approval by a majority vote in both Houses but not a Senate supermajority)?

I and others have argued that the Constitution's original meaning does not permit congressional-executive agreements; all binding international agreements must go through the treatymaking process unless they are in the narrow category of agreements that can be done by the President alone.  (My argument is principally in Chapter 10 of The Constitution's Text in Foreign Affairs; see also here from Laurence Tribe, with whom [on this issue, uncharacteristically] I entirely agree.)

Historically, congressional-executive agreements were rarely if ever used in the nation's early years.  Reviewing the early practice in this chapter, I concluded:

[U]ntil the late nineteenth century the overwhelmingly dominant form of U.S. international agreement making was the Senate-approved Article II treaty. A scattering of minor agreements occurred outside Article II, Section 2, but their constitutional basis was not well understood or explained, and they never posed a serious challenge to the preeminence of the process laid out in the Constitution’s text. Episodes that – had they developed differently – might have opened a path for rival processes, instead reaffirmed the role of the Senate ...

But in modern times congressional-executive agreements have become common, especially in trade law.  NAFTA, the agreements establishing the WTO, many bilateral free trade agreements, and the United States-Mexico-Canada Agreement (USMCA) that superseded NAFTA in 2020 are all examples, as are a number of key earlier agreements from the post-World War II era.

This practice raises a difficult question for originalists.  Originalism visibly struggles to incorporate non-originalist judicial precedent.  But I think originalism's struggle with precedent extends as well to entrenched non-originalist practices of the political branches.  Assuming congressional-executive agreements are not allowed under the Constitution's original meaning, what does an originalist make of the longstanding (since the end of World War II) practice of accepting them with minimal objection?  Bruce Ackerman and David Golove famously argued that the wide acceptance of the practice after World War II should be seen as a non-Article-V constitutional amendment.  I doubt many (any?) originalists would accept that view.  But the question remains whether non-originalist practice should carry precedential weight in an originalist system.

In the case of the MLC, I think there's a way to avoid answering that question.  My view, as to both judicial and non-judicial non-originalist precedents, is that originalists at most should read them narrowly.  (For a full discussion, see here.)  It is true that many congressional-executive agreements have been adopted without controversy since World War II in some areas. But international taxation is not one of those areas.  Instead, agreements regarding taxation of cross-border activities have continued to be handled by treaties approved by a Senate supermajority, even as congressional-executive agreements have come to dominate other areas such as trade law.  Thus, however originalists view the current constitutionality of trade-related agreements, they should not accept the expansion of congressional-executive agreements to a new field such as tax.  In an originalist analysis, the MLC must be adopted through the Constitution's treatymaking process.