Understanding the Transatlantic Implications of the Upcoming US Tax Bill: Five Key Takeaways
As Congress and the new Trump administration prioritize updating and renewing the 2017 Tax and Jobs Act, GMF and the Tax Foundation hosted a briefing on US tax changes and their potential impact on transatlantic investment, trade, and jobs.
The conversation also addressed global tax discussions at the Organization for Economic Co-operation and Development and the agreement to implement a 15% minimum tax under a provision known as Pillar 2, both of which are additional potential flashpoints in the coming year.
As the EU grapples with the challenges to its global competitiveness, which were outlined in a 2024 report by former Italian Prime Minister Mario Draghi, the transatlantic economic relationship is approaching a critical juncture.
Here are five key takeaways from the briefing:
- Transatlantic relations matter for US workers and Americans as a whole.
The United States and the EU are one another’s largest commercial trading partners. They exchange $8 trillion in goods and services, accounting for more than 16 million jobs on both sides of the Atlantic. The extent to which their supply chains are interconnected cannot be overstated. Still, the transatlantic economic relationship has been bumpy for some time, and some policy differences will continue regardless of the political parties in power.
- Tax policy will become a much more significant aspect of the US-EU relationship.
The United States will prioritize tax reform in 2025-2026 as required by expiring provisions. Taxation is normally seen as a domestic policy, but cross-border competition for investment and economic activity will see the issue assuming a more prominent role in transatlantic relations.
- A US tax policy that increases American competitiveness has implications for Europe.
If the United States uses tax policy to improve economic competitiveness, the EU may see decreased capital and investment inflows. This will create more challenges for Europe as it works to implement the Draghi report’s proposals. Trade, investment, and tax policy are more intertwined than ever.
- Transatlantic tax-related disputes are inevitable but need not dictate the relationship.
The renewal of the US Tax and Jobs Act could resolve existing transatlantic issues or create new ones. The United States and the EU can use tax and trade policy collaborate or compete with one another. But their collective power and influence over other allies and adversaries will dwindle if taxation exacerbates disagreement.
- Four key areas to watch as discussions continue are:
- OECD Pillar 2 (global minimum tax of 15%)
- tariffs
- digital service taxes
- carbon taxes