- The Washington Post reports that Treasury Secretary Yellen is working on a global minimum tax rate.
- The non-mandatory fee would apply to multinationals, as it seeks to prevent them from buying the lower territory.
- Yellen and Biden want to raise the corporate tax rate, but they need the rest of the world on board.
- See more stories on the Insider business page.
Treasury Secretary Janet Yellen has made it clear, since her confirmation hearing and subsequent press appearances, that the Biden government needs to increase tax revenues. At the same time, she warned of the difficulties of implementing a wealth tax, which is favored by the progressive wing of the Democratic Party.
Part of the solution is to reform the corporate tax rate – not just in the United States, but well beyond its borders.
To that end, Yellen is in active negotiations with other countries over defining a global minimum corporate tax rate, Jeff Stein of The Washington Post initially reported.
The United States has long been an unusual value, with a corporate tax rate of 35% against the international average of 24%, until ex-President Donald Trump’s tax cut in 2017 reduced the corporate rate to 21%. But even that has not stopped other countries from reducing their rates to attract multinationals. The Post noted that nine countries reduced their corporate tax rates last year.
Nobel Prize-winning economist Joseph Stiglitz, a Yellen mentor, told the Post that if she succeeds in these negotiations, it would be “a bit like the Paris climate tax deal”. Yellen is holding talks with more than 140 international counterparts through the Organization for Economic Cooperation and Development (OECD), where countries are looking at global fiscal issues, with a particular focus on technology.
The target for the time being is a non-binding consensus on a minimum tax rate within the OECD, with the thought that the US could exit the Trump era by 21% without fear that multinationals would fail to pay taxes at a lower rate in another place.
In the background of Yellen’s pressure for a global minimum is the current pressure from the Biden government to obtain more tax revenue. President Joe Biden is planning the first major federal tax hike in nearly three decades, according to Bloomberg. One of the proposals on the table is an increase in corporate tax, something that Biden campaigned for. He proposed to increase the corporate tax rate to 28%.
The right-wing Tax Foundation found that since 1980, “the average statutory tax rate for companies worldwide has consistently decreased”, with the biggest drops occurring in the early 2000s. According to the Tax Foundation, ” the world average corporate income tax rate “is 23.85%.
Biden also said this week that Americans earning more than $ 400,000 could see an increase in their taxes, a move he acknowledged may not win any Republican support.
There may be a tricky path to Yellen’s corporate minimum, according to the Post. Congress may need to be involved in approving new tax rules, and it may take years for the countries involved to pass the tax if they decide to adopt it.
As the Post reports, if the complex move is successful, it will be a major achievement for the presidency of Yellen and Biden – and perhaps for the world. It could also help pay for a $ 2 trillion infrastructure package.