Yellen pushes for global minimum corporate tax
Protections for US firms sought
WASHINGTON — U.S. Treasury Secretary Janet Yellen on Monday urged the adoption of a minimum global corporate income tax to offset any disadvantages that might arise from the Biden administration’s proposed increase in the U.S. corporate tax rate.
Citing a “30-year race to the bottom” in which countries have slashed corporate tax rates to attract multinational businesses, Yellen said the Biden administration would work with other advanced economies in the Group of 20 to set a minimum.
“Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen said in a virtual speech to the Chicago Council on Global Affairs. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods.”
The speech was Yellen’s highest-profile so far on international affairs, and came as the spring meetings of the World Bank and International Monetary Fund began in a virtual format.
“It is important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” Yellen said.
Sen. Pat Toomey, R-Penn., said that Yellen’s proposal was unlikely to make much progress overseas. He also said Republicans should reverse any corporate tax hike if they regain a congressional majority in upcoming elections.
“Spoiler alert: This effort will likely fail and, even if there is some sort of agreement, it will be non-binding because it is not a treaty,” Toomey said.
President Joe Biden has proposed hiking the U.S. corporate tax rate to 28% from 21%, partially undoing the Trump administration’s cut from 35% in its 2017 tax legislation. Biden also wants to set a minimum U.S. tax on overseas corporate income and to make it harder for companies to shift earnings offshore. The increase would help pay for the White House’s ambitious $2.3 trillion infrastructure proposal.
Also on Monday, Biden said he is “not at all” concerned that a higher corporate tax rate would cause some U.S. companies to relocate overseas, though Yellen’s proposed global minimum corporate tax is intended to prevent that from happening.
Yellen, meanwhile, downplayed the potential for the Biden administration’s domestic agenda, which includes a $1.9 trillion COVID relief package approved last month, to spur higher inflation.
“I strongly doubt that it’s going to cause inflationary pressures,” Yellen said, referring to the infrastructure proposal. “The problem for a very long time has been inflation that’s too low, not … too high.”
Yellen also said the U.S. will step up efforts at home and overseas to fight climate change “after sitting on the sidelines for four years.”
Treasury will work to
“promote the f low of capital … away from carbon-intensive investments,” Yellen said. That approach has raised the ire of GOP members of Congress, who say it threatens the ability of the U.S. oil and gas industry to access needed lending.
Yellen also noted that many developing nations are lagging in vaccinating their populations and have experienced harsh economic consequences from the pandemic. As many as 150 million people worldwide will fall into extreme poverty this year, Yellen said.
“The result will likely be a deeper and longer-lasting crisis, with mounting problems of indebtedness, more entrenched poverty, and growing inequality,” Yellen said.
The Biden administration supports the creation of $650 billion in new lending capacity at the IMF to address such issues, she said. Many Republicans in Congress argue that much of the funding would flow to relatively better-off developing countries, such as China.
Yellen acknowledged that the additional credit would be distributed to each IMF member, but argued that “significant resources will go to the … countries most in need.” Nations can also donate some of their funds to the hardest-hit countries, which she expects many will do, she added.