WASHINGTON (AP) – US Treasury Secretary Janet Yellen on Monday pushed for the introduction of a minimum global corporate tax, an effort to at least partially offset the drawbacks that could stem from the Biden government’s proposed increase in the U.S. corporate tax rate.
Citing a “race to the bottom of 30 years” in which countries cut corporate tax rates in an effort to attract multinational corporations, Yellen said Biden’s government would work with other advanced economies in the Group of 20 to minimize to establish.
“Competitiveness is about more than how US-headquartered companies stack up against other companies in global mergers and takeover bids,” Yellen said in a virtual address to the Chicago Council on Global Affairs. “It’s about ensuring that governments have stable tax systems that generate enough revenue to invest in essential public goods.”
The speech was Yellen’s most prominent on international affairs so far, coming just as the spring meetings of the World Bank and the International Monetary Fund began in virtual form.
“It is important to work with other countries to end the pressures of tax competition and corporate tax erosion,” said Yellen.
President Joe Biden has proposed raising the U.S. corporate tax rate from 21% to 28%, partially reversing the Trump administration’s 35% cut in the 2017 tax bill. Biden also wants to impose a minimum U.S. tax on foreign business income and make it more difficult for companies to shift their income overseas. The increase would help pay for the White House’s ambitious $ 2.3 trillion infrastructure proposal
Yellen’s comments essentially serve as confirmation of negotiations that have been underway at the 37-country Economic Co-operation and Development Organization for about two years, said Alan Auerbach, an economist at the University of California at Berkeley.
Biden’s US corporate tax proposal includes an increase in the US minimum tax that was included in Trump’s tax law from 10.5% to 21%. One of the focal points of the OECD talks is whether other countries will adopt similar minimums. Biden’s corporate tax measure would also penalize other countries without a minimum corporate tax by taxing their US subsidiaries more heavily
Auerbach said the OECD has helped promote other agreements on things like banking secrecy.
“There is precedent for things like this,” Auerbach said. “But this would be a major problem, as it would lead countries to coordinate their tax systems in a way that they have not done before.”
On Monday, Biden also said he is “not at all” concerned that a higher corporate tax rate would cause some US companies to move abroad, although Yellen’s proposed global minimum corporate tax is intended to prevent that.
“There’s no evidence for that … that’s bizarre,” Biden said in response to a question from reporters.
According to the Tax Foundation, a right-leaning think tank, the Trump administration’s cut in corporate taxes lowered the U.S. rate from the highest of the OECD countries to the 13th highest. However, many analysts have argued that few large American multinationals have paid full tax.
“We have 51 or 52 Fortune 500 companies that haven’t paid a cent a day for three years?” Biden said. “Come on.”
Senator Pat Toomey, R-Penn., Said Yellen’s proposal was unlikely to make much headway abroad. He also said Republicans should reverse any increase in corporate taxes if they regain a congressional majority in the upcoming election.
“Spoiler alert: this effort is likely to fail and even if there is some sort of agreement it will not be binding because it is not a treaty,” said Toomey.
Yellen, meanwhile, downplayed the potential for the Biden government’s domestic agenda, which also includes a $ 1.9 trillion COVID aid package approved last month, to encourage higher inflation. Former Treasury Secretary Larry Summers, among others, has voiced such concerns since the emergency relief bill was passed.
“I strongly doubt it will create inflationary pressures,” Yellen said, referring to the government’s infrastructure proposal. “The problem for a long time has been inflation that is too low, not inflation that is too high.”
Yellen also said the United States will step up its efforts at home and abroad to combat climate change, “after being on the sidelines for four years.”
Treasury will work to “drive the flow of capital into climate-related investments and away from carbon-intensive investments,” Yellen said. That approach has angered GOP members of Congress, who say it threatens the ability of the US oil and gas industry to access needed loans.
Yellen also noted that many developing countries are lagging behind in vaccinating their populations and have also suffered the severe economic impact of the pandemic. As many as 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 growing problems of debt, deeper-rooted poverty and growing inequality,” said Yellen.
The Biden administration is supporting the creation of $ 650 billion in new lending capacity with the IMF to address such issues, she said. Many Republicans in Congress are against the reassignment, arguing that much of the funding would flow to relatively wealthy developing countries, such as China.
Yellen acknowledged that the additional credit would be distributed to every IMF member, but argued that “significant resources go to the poorest countries most needed”. Nations can also donate some of their funds to the hardest hit countries, which they expect many will do, she added.