WASHINGTON (AP) – U.S. Treasury Secretary Janet Yellen on Monday called for the adoption of a minimum global corporate income tax, an attempt to at least partially address the disadvantages that may arise from the Biden government’s proposed increase in the US corporate tax rate.
Referring to a “30-year race to the bottom” in which countries lowered tax rates in an effort to attract multinational corporations, Yellen said the Biden government would work with other advanced economies in the Group of 20 to set a minimum.
“Competitiveness is about more than the way U.S. headquarters fare against other companies in global mergers and acquisitions,” Yellen said in a virtual speech to the Chicago Council on Global Affairs. “It’s about making sure governments have stable tax systems that generate enough revenue to invest in essential public goods.”
The speech has so far been Yellen’s highest profile on international affairs, and it comes just as the World Bank and International Monetary Fund spring meetings begin in a virtual format.
“It’s important to work with other countries to end the pressure of tax competition and corporate tax erosion,” Yellen said.
President Joe Biden has proposed raising the U.S. corporate tax rate to 28% from 21%, partially undoing the Trump administration’s 35% cut in its 2017 tax legislation. Biden also wants to set a minimum U.S. tax on foreign corporate income, and to make it harder for companies to shift their foreign earnings. The increase will help pay for the White House’s ambitious $ 2.3 billion infrastructure proposal.
Yellen’s remarks serve essentially as an endorsement of negotiations that have been going on at the Organization for Economic Co-operation and Development in 37 countries for about two years, said Alan Auerbach, an economist at the University of California at Berkeley.
Biden’s U.S. corporate tax proposal includes an increase in the U.S. minimum tax included in Trump’s tax law from 10.5% to 21%. One focus of the OECD talks is whether other countries will accept similar minimums. Biden’s corporate tax measure will also punish other countries without a minimum corporate tax by taxing their US subsidiaries more heavily
Auerbach said the OECD had helped promote other agreements on issues such as banking secrecy.
“There are precedents for this kind of thing,” Auerbach said. “But it will be a big deal, because it will get countries to coordinate their tax systems in a way they have not done before.”
Biden also said Monday that he was “not at all” worried that a higher corporate tax rate would move some U.S. companies abroad, although Yellen’s proposed global minimum corporate tax rate is aimed at preventing that.
“There is no evidence for that … it’s weird,” Biden said in response to a report from reporters.
According to the Tax Foundation, a right-thinking tank, the Trump administration’s reduction in corporate taxes has lowered the U.S. rate from the highest among OECD countries to the 13th highest. However, many analysts have argued that few large U.S. multinational corporations have paid full taxes.
“We have 51 or 52 Fortune 500 companies that have not paid one cent a day for three years?” Biden said. ‘Come.’
Sen. Pat Patome, R-Penn., Said Yellen’s proposal is unlikely to make much progress overseas. He also said Republicans should stop any increase in tax rates if they get a congressional majority again in the upcoming election.
“Pampering alarm: this attempt is likely to fail, and even if there is some kind of agreement, it will not be binding because it is not a treaty,” Toomey said.
Yellen, meanwhile, has reduced the potential of the Biden government’s domestic agenda, which also includes a $ 1.9 billion COVID relief package approved last month, to spur higher inflation. Former Treasury Secretary Larry Summers has expressed such concern since the enactment bill was passed.
“I strongly doubt it will cause inflationary pressures,” Yellen said, referring to the government’s infrastructure proposal. “The problem for a long time was too low inflation and not too high inflation.”
Yellen also said the United States would step up its efforts to combat climate change at home and abroad, “after sitting on the sidelines for four years.”
The treasury will strive to “promote the flow of capital to climate-oriented investments and not carbon-intensive investments,” Yellen said. This approach has angered members of Congress, who believe it threatens the U.S. oil and gas industry’s ability to threaten access to the necessary loans.
Yellen also noted that many developing countries are lagging behind in vaccinating their populations, and that they have also experienced severe economic consequences from the pandemic. About 150 million people worldwide will fall into extreme poverty this year, Yellen said.
“The result is likely to be a deeper and longer-lasting crisis, with increasing debt problems, more entrenched poverty and increasing inequality,” Yellen said.
The Biden government supports the creation of $ 650 billion in new borrowing capacity from the IMF to address such issues, she said. Many Republicans in Congress are opposed to the new grant, arguing that much of the funding will flow to relatively better-off developing countries, such as China.
Yellen acknowledged that the additional credit would be distributed to each IMF member, but argued that ‘significant resources go to the poorest countries most in need’. Nations can also donate some of their funds to the countries hardest hit, which she says will do a lot, she added.