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U.S. Ends Tax Treaty with Hungary by Sven R. Larson

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U.S. Ends Tax Treaty with Hungary

The U.S. government announced on Friday that it will terminate its tax treaty with Hungary. The reason, Zerohedge reports, is the Hungarian government’s resistance to the European Union’s participation in a global cartel. The goal of the cartel is to institute a minimum tax on corporations:

Hungary blocked the EU’s finalization of the 15% minimum tax scheme in June. Over the past dozen years, Hungary has slashed its corporate tax rate from 19% to just 9%.

Hungary is the last holdout among the 27 members of the European Union, thus blocking Brussels from implementing the tax-cartel minimum rate. According to the Washington Post, the U.S. Treasury Department

said the United States is ending the treaty with Hungary because “the benefits are no longer reciprocal,” citing a loss of tax revenue for the United States and little return for American investment in the country. 

The Treasury also claimed that the current treaty was entered into when Hungary still imposed a 50% corporate tax rate. The current rate is 9%, making it the lowest in the EU and the second lowest in Europe (after Switzerland). 

If the 15% rate is implemented, Hungary and Ireland, whose rate is currently 12.5%, are the only EU member states that would have to raise their corporate-income tax. 

In June, Balázs Orbán, political director under the Hungarian prime minister, explained in the Wall Street Journal that the tax cartel has a dual purpose: to “put an end to big tech firms’ tax avoidance” and to impose the global minimum rate. As the European Conservative explained in January, the 15% level will effectively create a global-monopoly tax rate

Orbán points out that the timing of the minimum-tax ratification is bad, with the EU moving toward an economic crisis and the effects of war-related sanctions reverberating through the European economy.

Brussels has attempted to create a tax cartel before. In 2018, the Center for Freedom and Prosperity reported that the EU Commission wanted to “take away the veto power of individual member states” and increasingly rely on qualified majorities for tax policy purposes.

Sven R. Larson is a political economist and author. He received a Ph.D. in Economics from Roskilde University, Denmark. Originally from Sweden, he lives in America where for the past 16 years he has worked in politics and public policy. He has written several books, including Democracy or Socialism: The Fateful Question for America in 2024.