Treasury Secretary Janet Yellen said the Biden administration is working with other like-minded world leaders to introduce a global minimum tax rate on companies.
In a virtual speech delivered to the think tank Chicago Council on Global Affairs, Yellen deplored what she said has been a “race to the bottom” over the past 30 years, in which countries have sought to reduce corporate tax rates to incentivize multinational businesses, including U.S.-owned businesses, to offset costs via accounting moves that transfer their revenues to countries with lower corporate taxes.
“Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen said. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
She said, “We are working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom. Together, we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity.”
The Biden administration believes it is “important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” Yellen added of the U.S. government efforts.
Yellen’s speech comes ahead of the World Bank and International Monetary Fund’s virtual meetings this week. Her remarks essentially serve as an endorsement of negotiations that have been underway at the 37-nation Organization for Economic Cooperation and Development for roughly two years, Alan Auerbach, an economist at the University of California at Berkeley, told The Associated Press.
President Joe Biden last week announced a $2 trillion infrastructure bill dubbed the “America Jobs Plan” that would have to be funded, in part, by increasing the U.S. corporate tax rate to 28 percent from the current 21 percent, which had been in place since 2017 when former President Donald Trump signed into law the Tax Cuts and Jobs Act (TCJA) that reduced the rate from 35 percent.
Biden also proposed a minimum tax on overseas corporate income to 21 percent—a doubling of the current 10.5 percent—and eliminating some tax deductions on overseas income, moves that the administration says would discourage the shifting of jobs and profits overseas.
The America Jobs Plan also advocates for a global minimum tax rate on companies.
“The United States is now seeking a global agreement on a strong minimum tax through multilateral negotiations. This provision makes our commitment to a global minimum tax clear. The time has come to level the playing field and no longer allow countries to gain a competitive edge by slashing corporate tax rates,” reads a White House fact sheet on the proposal.
“A minimum tax on U.S. corporations alone is insufficient. That can still allow foreign corporations to strip profits out of the United States, and U.S. corporations can potentially escape U.S. tax by inverting and switching their headquarters to foreign countries. This practice must end,” it adds. “President Biden is also proposing to encourage other countries to adopt strong minimum taxes on corporations, just like the United States, so that foreign corporations aren’t advantaged and foreign countries can’t try to get a competitive edge by serving as tax havens.”
Biden, when asked whether he was concerned that raising U.S. corporate tax rates could drive companies out of the country, said “there’s no evidence of that.”
“The tax was 36 percent, and it’s now down to 21 percent … It’s bizarre, we’re talking about a 28 percent tax that everybody thought was just fair enough for everybody,” he said. “Here, you have 51 or 52 corporations in the Fortune 500 that haven’t paid a single penny in taxes for three years? Come on, man. Let’s get real.”
Increasing the corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, making it the highest rate in the OECD, which would in effect reduce U.S. competitiveness, the Tax Foundation, a nonprofit tax policy think-tank, has reported (pdf). The average corporate tax rate among the OECD countries, excluding the United States, stands at 23.4 percent.
“We estimate that this would reduce long-run economic output by 0.8 percent, eliminate 159,000 jobs, and reduce wages by 0.7 percent,” the foundation said in February.