Yellen seeks allies on world minimum for taxes
WASHINGTON — Treasury Secretary Janet Yellen is working with her counterparts around the world to forge an agreement over a global minimum tax on multinational corporations, as the White House looks for revenue to help pay for President Joe Biden’s domestic agenda.
The $1.9 trillion stimulus signed into law last week was financed completely by additional federal borrowing. But the administration is expected to raise taxes at least partially to pay for its other big-ticket spending priorities, such as the huge infrastructure and jobs package being discussed by White House officials and congressional Democrats.
A key source of new revenue probably will be corporate taxes, which President Donald Trump sharply cut in 2017.
Although he has not proposed entirely reversing Trump’s cut in the corporate tax rate from 35% to 21%, Biden has said he would aim to raise potentially hundreds of billions more in revenue from big businesses. But some tax experts, business groups and Republican lawmakers say raising the rate could damage U.S. competitiveness.
Countries around the globe have both recently and over the past several decades joined the United States in reducing tax rates to attract corporate investment, a trend some economists view as a destructive “race to the bottom.”
The average tax rate among countries is 24%, according to the Tax Foundation, a right-leaning think tank. Just last year, nine countries, including France,
lowered their corporate tax rates.
“It’s a little like the Paris climate accord of taxes. Every country thinks it can steal business from others by lowering taxes, and the only beneficiary of that race to the bottom has been the richest multinational corporations,” said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University and mentor of Yellen’s.
Yellen is working to curb the practice through an effort at the Organization for Economic Cooperation and Development in which more than 140 countries are participating. The goal is for countries to agree in principle to a minimum corporate tax rate — although it would be nonbinding — that would make it harder for multinational corporations to play countries off each other by threatening to leave.
Yellen has in her first several weeks in office spoke about the tax negotiations with the finance ministers of Germany and France, among other nations, according to the Treasury Department. In late February, Yellen also told the Group of 20 nations that the United States has dropped demands to allow firms to opt out of new global digital taxes — a move applauded by other European nations that bolstered hopes for an agreement within months, possibly this summer, although significant hurdles remain.
“A global minimum tax could stop the destructive global race to the bottom on corporate taxation and help discourage harmful profitshifting,” Yellen told U.S. senators during her confirmation process.
Yellen also said, “It’s necessary for U.S. companies to be globally competitive, and that’s why these OECD negotiations are so important.”
But Yellen’s efforts face myriad skeptics, who worry the push could encourage further tax shifting to countries outside the agreement, or lead the United States to make concessions that will hurt its competitiveness.
The U.S. Chamber of Commerce says it supports a “multilateral” approach to the problem but is “extremely concerned” that the proposed rules would create additional complexity for multinational firms. Critics, including the Chamber, have expressed concern the agreement would also lead firms to face “double taxation” on some profits, meaning two countries would levy taxes on the same stream of income.
Over the past four decades, industrialized nations around the globe have dramatically slashed businesses taxes.
Multinational corporations have increasingly stashed their profits in overseas tax havens, where little real economic activity occurs. At the same time, corporate tax rates have also fallen in industrialized countries not considered tax havens, in part because they are attempting to prevent capital from going to low-tax jurisdictions.
The average corporate tax rate globally in 1980 was approximately 40%, a number that has fallen to about 23% in 2020, according to the Tax Foundation. About 40% of profits earned by the world’s multinational firms — or more than $700 billion — was stashed in tax havens in 2017, the most recent yeafor which data is available, according to research by a team of economists including Gabriel Zucman, an economist at the University of California at Berkeley.