WASHINGTON (AP) – U.S. Treasury Secretary Janet Yellen on Monday urged the adoption of a global corporate income tax, an effort to at least partially offset any disadvantages that could result of the increase proposed by the Biden administration in the U.S. corporate tax rate.
Citing a “30-year race to the bottom” in which countries have 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 the 20 to set a minimum.
“Competitiveness is more than the way U.S.-based companies behave against other companies in global merger and acquisition offerings,” Yellen said in a virtual speech at the Chicago Global Affairs Council. “It’s about ensuring that governments have stable tax systems that raise enough revenue to invest in essential public goods.”
Yellen’s speech was the highest so far in international affairs and took place just as the spring meetings of the World Bank and the International Monetary Fund began in virtual format.
“It’s important to work with other countries to end the pressures of tax competition and the erosion of companies’ tax base, ”Yellen said.
President Joe Biden has proposed raising the U.S. corporate tax rate to 28% from 21%, partially undoing the Trump administration’s 35% cut in its 2017 tax legislation Biden also wants to set a tax US minimum on corporate income abroad and hinder the transfer of profits to companies. The increase would help pay for the White House’s ambitious $ 2.3 trillion infrastructure proposal.
Yellen’s statements serve essentially to endorse negotiations that have been underway in the Organization for Economic Co-operation and Development (37 countries) 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 included in Trump’s tax law from 10.5% to 21%. One of the focuses of 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 imposing their US subsidiaries more heavily.
Auerbach said the OECD has helped push for other agreements on issues such as banking secrecy.
“There are precedents for this kind of thing,” Auerbach said. “But that would be a great thing because it would get countries to coordinate their tax systems in ways they hadn’t done before.”
Also Monday, Biden said he is “not at all concerned” that a higher corporate tax rate will cause some U.S. companies to move abroad, even though the overall minimum corporate tax proposed by Yellen is destined to prevent this from happening.
“There’s no evidence of that … that’s weird,” Biden said in response to a question from reporters.
According to the Tax Foundation, a right-wing think tank, the Trump administration’s corporate tax cut reduced the U.S. rate from the highest of OECD countries to the 13th highest. Many analysts have argued, however, that few large U.S. multinationals paid the full tax.
“Do we have 51 or 52 Fortune 500 companies that don’t pay a penny a day for three years?” Biden said. “Come on.”
Senator Pat Toomey, R-Penn., Said it is unlikely that Yellen’s proposal will progress abroad. He also said Republicans should reverse any corporate tax increases if they regain 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,” Toomey said.
Yellen, meanwhile, downplayed the Biden administration’s national agenda, which also includes a $ 1.9 trillion COVID relief package approved last month, to drive higher inflation. Former Treasury Secretary Larry Summers, among others, has raised these concerns since the relief bill was passed.
“I strongly doubt it will cause inflationary pressures,” Yellen said, referring to the administration’s infrastructure proposal. “The problem for a long time has been inflation too low, not inflation too high.”
Yellen also said the United States will intensify its efforts at home and abroad to fight climate change, “after being on the sidelines for four years.”
Treasury will work to “promote capital flow toward climate-aligned investments and move away from carbon-intensive investments,” Yellen said. This approach has raised the anger of members of the GOP Congress, who say it jeopardizes 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 that they have also experienced severe economic consequences from 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 more lasting crisis, with growing debt problems, more consolidated poverty and growing inequality,” Yellen said.
The Biden administration supports the creation of $ 650 billion in new lending capacity to the IMF to address these issues, he said. Many Republicans in Congress oppose the new allocation, arguing that much of the funding will go to relatively better developing countries, such as China.
Yellen acknowledged that the additional credit would be distributed to each member of the IMF, but argued that “significant resources will be allocated to the poorest countries with the most needs.” Nations can also donate part of their funds to the hardest hit countries, which he hopes many will do, he added.