Janet Yellen sees Joe Biden’s tax plan reclaiming $ 2 trillion in foreign profits

Photographer: Erin Scott / Bloomberg

Treasury Secretary Janet Yellen revealed a detailed sales pitch for the Biden administration’s proposed new corporate tax code, a plan she said would be fairer to all Americans, remove incentives for businesses to move investments and profits overseas and more raise money for critical needs at home.

Building on the tax proposals released last week in President Joe Biden’s $ 2.25 trillion economic package, the Treasury said the changes would bring about $ 2 trillion in corporate profits back into the U.S. tax network over a decade, with approximately $ 700 billion in federal revenue stream. of ending incentives to shift profits abroad.

All told, the additional tax of about $ 2.5 trillion over 15 years would pay for Biden’s eight-year spending initiative, which focuses on infrastructure, green investments and social programs that would support a larger workforce, the Treasury said. Few big companies would go untouched, with technology giants like Apple Inc. and Microsoft Corp. who would probably pay more.

“Our tax revenues are already at their lowest levels for generations, and as they continue to fall lower we will have less money to invest in roads, bridges, broadband and R&D,” Yellen told reporters during a telephone briefing, referring to research. and development. . “By choosing to compete on tax, we have failed to compete on the skill of our employees and the strength of our infrastructure. It’s a self-destructive competition. “

Main elements

The Treasury has issued a 17 page reports Wednesday that will likely serve as a roadmap for government officials and lawmakers looking to navigate the combined package of spending and tax proposals through Congress in the coming months.

Key elements of the corporate tax plan include increasing the U.S. corporate rate from 21% to 28% and imposing minimum taxes on both foreign income and the domestic profits that companies report to shareholders, changes that would significantly increase the taxes that companies would owe would increase. .

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The tax proposals are already facing stiff opposition from Republican lawmakers and pushback from some moderate Democrats. Senator Joe Manchin of West Virginia has said he is at a corporate tax rate of more than 25%. With the Senate split 50-50, Biden cannot afford to lose the support of a single Democratic senator if he wants to push through with some of the package.

While most business groups, including the US Chamber of Commerce and the Business Roundtable, have spoken out against the tax increases, some have recognized that higher corporate taxes can bring benefits to finance infrastructure spending. Amazon.com Inc. Chief Executive Officer Jeff Bezos said on Tuesday that he will would support an increase in the tax rate, but did not specify a number.

The proposal for a global minimum tax comes as the Organization for Economic Co-operation and Development is in talks with about 140 countries, including the US, about imposing a global tax on corporate profits. A global rate has yet to be determined, although previous proposals had suggested rates of around 12.5%. Biden’s plan for 21% could be significantly higher and could complicate negotiations.

Read More: Global Minimum Tax Momentum Wins With G-20 Seeing Mid-Year Deal

The Treasury report contained a slew of data to support the administration’s case. US-based companies operating worldwide collectively paid an effective rate of 7.8% in 2018, the first year that former President Donald Trump’s tax cut took effect, according to the impartial Joint Committee on Taxation. The year before, companies paid 16%.

In OECD member states, corporate tax income averages 3.1% of GDP. In the US it is 1%, the treasury said.

Worker burden

That puts an unfair burden on workers, exacerbated by Trump’s 2017 changes that lower corporate taxes, the Treasury report said. The report points to research showing that companies are putting more of their savings from the Trump tax cuts into share buybacks and dividend payments than into new investments.

Profitable companies would no longer be able to use tax breaks to completely eliminate their federal tax bills and would be required to pay at least 15% on the profit reported on their financial statements, known as book income.

That tax would apply to businesses earning at least $ 2 billion, an increase from a $ 100 million threshold included in Biden’s campaign tax plan. About 180 companies have reported revenues at those levels in recent years, and about 45 of those companies would have paid the minimum tax if Biden’s plan were in effect, the report said.

The average company facing the tax would have an increased minimum tax liability of about $ 300 million per year, the Treasury said.

Tech Giants