Treasury Secretary Janet Yellen listens during a meeting with President Biden on March 5 at the White House. Yellen proposed a global minimum corporate tax rate on Monday. Al Drago / Pool / Getty Images Hide caption
Al Drago / Pool / Getty Images
Al Drago / Pool / Getty Images
This idea has been widely debated in all capitals of the world: impose the same minimum tax rate on businesses around the world to prevent businesses from shopping for the country that can offer the least tax burden.
Now it has a powerful new trailer. Treasury Secretary Janet Yellen on Monday expressed her support for a minimum tax rate, which is the US government’s key support.
In a speech, Yellen said a global minimum tax rate would stop what she called a “30 year race to the bottom” that has allowed large corporations not to fully contribute to vital national needs.
Support for a global tax rate is a new element in the Biden government’s tougher approach to corporate taxes.
President Biden is already anticipating higher corporate tax revenues to fund his administration’s $ 2.3 trillion infrastructure plan.
Yellen’s endorsement of a global minimum tax rate is now designed to ensure that companies pay a minimum amount of tax regardless of where they are based – and reduce the temptation to move to another country. This would also ensure that higher domestic tax rates would not expose US companies to such a major global disadvantage.
“It’s important to work with other countries to end the pressures of tax competition,” Yellen told the Chicago Council on Global Affairs. “We’re working with G20 countries to agree a global minimum corporate tax rate that can stop the race to the bottom.”
It is not clear that low tax countries would accept a higher global minimum. Ireland, for example, has gained a huge competitive advantage with a lower tax system and has attracted companies like Apple to the country.
Ireland has often turned this against governments with higher taxes. However, the global minimum tax rate has been vigorously opposed by businesses in general, leaving it unclear whether countries will eventually agree on the proposal.
In the US, corporate groups like the US Chamber of Commerce have said they are opposed to the Biden administration’s plan to levy corporate taxes to finance infrastructure, even though they welcome increased investment in areas such as roads, ports and broadband.
Biden’s plan would increase the corporate tax rate from 21% to 28% while taxing corporate foreign income at a tax rate of at least 21%. The administration says the plan would generate enough revenue over 15 years to cover eight years of infrastructure spending.
The corporate tax rate was 35% before the 2017 tax cut by the Trump administration. However, companies are often able to reduce their tax burden through various deductions or through parking profits in low-tax havens overseas.
The left-wing Institute of Taxes and Economic Policy notes that 55 large corporations – including Nike, FedEx, and Duke Energy – paid no federal income taxes in the past fiscal year despite reporting collective profits of more than $ 40 billion to their shareholders.
As part of the wider economy, US companies pay lower taxes than many of their foreign competitors. Federal, state, and local corporate tax revenues in the United States are 1% of GDP, compared to about 2% in Germany, France, and Italy and about 4% in Japan and Canada.
Yellen said it is important that “all citizens share the burden of government funding fairly”.
“Competitiveness is not just about how US-based companies hold their own against other companies in global merger and takeover bids,” Yellen argued. “It’s about ensuring that governments have stable tax systems in place that generate sufficient income to invest in vital public goods and respond to crises.”