Janet Yellen proposes bold idea: The same minimum corporate tax around the world
It's an idea that has been debated widely across global capitals: impose the same minimum corporate tax rate all over the world to prevent companies from shopping around for the country that can offer the smallest tax bill.
Now, it has a powerful new adherent. Treasury Secretary Janet Yellen on Monday expressed support for a minimum tax rate, providing the vital backing of the U.S. government.
Yellen, in a speech, said a minimum global tax rate would stop what she described as a "30-year race to the bottom" that has allowed big corporations to avoid contributing fully to vital national needs.
The support for a global tax rate is a new plank in the Biden administration's tougher approach to corporate taxes.
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President Joe Biden is already counting on 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 meant to ensure that companies pay a minimum amount of tax no matter where they are based — reducing the temptation to relocate to another country. It would also ensure that higher tax rates at home don't put U.S. companies at a 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 G-20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom."
It's not clear that low-tax countries would embrace a higher global minimum. Ireland, for example, has derived a major competitive advantage with a lower tax regimen, attracting the likes of Apple to the country.
That has often pitted Ireland against higher-tax governments. But the global minimum tax rate has generally been strongly opposed by corporations, making it unclear whether countries will end up agreeing on the proposal.
In the United States, business groups like the U.S. Chamber of Commerce have already said they oppose the Biden administration's plan to raise corporate taxes to fund infrastructure, even if they applaud increased investment in areas like roads, ports and broadband.
Biden's plan would raise the tax rate on corporations from 21 percent to 28 percent, while also taxing companies' foreign income at a rate of at least 21 percent. The administration says the plan would raise enough revenue over 15 years to cover eight years of spending on infrastructure.
The corporate tax rate was 35 percent before the 2017 tax cut by the Trump administration. But companies are often able to lower their tax bill through various deductions or by parking profits in low-tax havens overseas.
The left-leaning Institute on Taxation and Economic Policy notes that 55 big corporations — including Nike, FedEx and Duke Energy — paid no federal income taxes in the most recent fiscal year, despite reporting a collective profit of more than $40 billion to their shareholders.
As a share of the overall economy, U.S. corporations pay lower taxes than many of their foreign competitors. Corporate tax revenues at the federal, state and local levels in the U.S. are 1 percent of GDP, compared with about 2 percent in Germany, France and Italy and around 4 percent in Japan and Canada.
Yellen said it's important that "all citizens fairly share the burden of financing government."
"Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger-and-acquisition bids," Yellen also argued. "It's about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises."
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