WASHINGTON (AP) – U.S. Treasury Secretary Janet Yellen on Monday called for the adoption of a minimum global corporate income tax, an effort to at least partially offset any disadvantages that may arise from the government’s proposed increase Biden at the US corporate tax rate.
Citing a “race to the bottom of 30 years” in which countries reduced corporate tax rates in an effort to attract multinational companies, Yellen said the Biden administration would work with other advanced economies in the Group of 20 to set a minimum .
“Competitiveness is more than how companies based in the United States fare against other companies in global merger and acquisition proposals,” said Yellen in a virtual speech to the Chicago Global Affairs Council. “It is about ensuring that governments have stable tax systems that generate enough revenue to invest in essential public goods.”
The speech was Yellen’s best known so far in international affairs, and it came at a time when the spring meetings of the World Bank and the International Monetary Fund began in virtual format.
“It is important to work with other countries to end the pressures of tax competition and the erosion of the tax base of companies,” said Yellen.
President Joe Biden has proposed increasing the U.S. corporate tax rate from 21% to 28%, partially undoing the Trump administration’s cut of 35% in its 2017 tax legislation. Biden also wants to establish a US minimum corporate income tax abroad and make it more difficult for companies to transfer profits abroad. The increase would help pay for the White House’s ambitious $ 2.3 trillion infrastructure proposal.
Yellen’s comments essentially serve as an endorsement to the negotiations that have been underway at the 37-nation Organization for Economic Cooperation and Development 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 that was included in Trump’s tax law, from 10.5% to 21%. A focus of the OECD negotiations is whether other countries will adopt similar minimums. Biden’s corporate tax measure would also penalize other countries without a minimum corporate tax, taxing their subsidiaries in the United States more heavily.
Auerbach said that the OECD helped to foster other agreements around issues such as banking secrecy.
“There are precedents for this type of thing,” said Auerbach. “But that would be a big deal, because it would make countries coordinate their tax systems in a way they didn’t before.”
Also on Monday, Biden said he “is not at all” concerned that a higher corporate tax rate could cause some American companies to move abroad, although the global minimum corporate tax proposed by Yellen has the intention to prevent this from happening.
“There is no evidence of this … this is bizarre,” said Biden in response to a question from reporters.
According to the Tax Foundation, a right-wing think tank, the Trump administration’s corporate tax reduction has lowered the U.S. rate from the highest among OECD countries to the 13th highest. Many analysts have argued, however, that few large American multinationals have paid the full tax.
“Do we have 51 or 52 Fortune 500 companies that haven’t paid a single cent a day for three years?” Biden said. “We will.”
Senator Pat Toomey, R-Penn., Said that Yellen’s proposal is unlikely to make much progress abroad. He also said that Republicans should reverse any corporate tax hike if they regained a majority in Congress in the next election.
“Spoiler alert: this effort is likely to fail and even if there is some kind of agreement, it will not be binding because it is not a treaty,” said Toomey.
Yellen, meanwhile, downplayed the potential of the Biden government’s domestic agenda, which also includes a $ 1.9 trillion COVID aid package approved last month, to spur higher inflation. Former Treasury Secretary Larry Summers, among others, has raised these concerns since the bill was passed.
“I very much doubt that this will cause inflationary pressures,” said Yellen, referring to the government’s infrastructure proposal. “The problem for a long time was very low inflation, not very high inflation.”
Yellen also said that the United States will intensify its efforts at home and abroad to combat climate change, “after being on the sidelines for four years”.
The Treasury will work to “promote the flow of capital towards climate investments and away from carbon-intensive investments,” said Yellen. This approach has sparked the ire of Republican Party members in Congress, who say it threatens the ability of the U.S. oil and gas industry to access the necessary loans.
Yellen also noted that many developing nations are lagging behind in vaccinating their populations and have also suffered harsh economic consequences from the pandemic. About 150 million people worldwide will fall into extreme poverty this year, said Yellen.
“The result is likely to be a deeper and longer-lasting crisis, with growing debt problems, more entrenched poverty and growing inequality,” said Yellen.
The Biden government supports the creation of $ 650 billion in new IMF lending capacity to address these issues, she said. Many Republicans in Congress are opposed to the new distribution, arguing that much of the funding would go to relatively better developing countries, such as China.
Yellen acknowledged that additional credit would be distributed to each member of the IMF, but argued that “significant resources will go to the poorest and most needy countries”. Nations can also donate part of their funds to the most affected countries, which she expects many to do, she added.