Yellen calls for a global minimum corporate tax rate.
Treasury Secretary Janet L. Yellen advocated a global minimum tax on Monday, kicking off the Biden administration’s efforts to increase US revenue and prevent companies from shifting profits overseas to evade taxes.
Ms. Yellen, speaking to the Chicago Council on Global Affairs, called for global coordination of an international tax rate that would apply to multinational companies regardless of where they are headquartered. Such a global tax could help prevent the kind of “race to the bottom,” Ms. Yellen said, referring to countries trying to outdo each other by lowering tax rates to attract businesses.
Their remarks came as the White House and Democrats in Congress sought ways to pay for President Biden’s comprehensive infrastructure plan to rebuild American roads, bridges, water systems, and the electrical grid.
“Competitiveness is not just about how US-based companies hold up against other companies in global merger and acquisition bids,” said Yellen. “The point is to ensure that governments have stable tax systems that generate sufficient income to invest in essential public goods and respond to crises, and that all citizens share the burden of funding government fairly.”
Senator Ron Wyden, the Oregon Democrat in charge of drafting tax laws, will release a new plan on Monday to revise the way the US tax multinational corporations. Co-authored by Senator Sherrod Brown of Ohio and Senator Mark Warner of Virginia, the proposal aims not only to increase revenue, but also to discourage businesses from moving profits and jobs to low-tax countries in order to avoid paying taxes in America . The tax code also creates new incentives for companies to invest in research and manufacturing in the United States.
The speech was Ms. Yellen’s largest comment since taking office as Finance Minister and highlighted the scope of the challenge ahead.
“For the past four years we’ve seen firsthand what happens when America steps back from the global stage,” said Ms. Yellen. “America first must never mean America alone.”
Ms. Yellen also highlighted her priorities in tackling climate change and reducing global poverty, highlighting the importance of the United States in helping to bring the world out of the crisis caused by the pandemic. Ms. Yellen urged countries not to withdraw fiscal support too early and warned of growing global imbalances if some countries pull back before the end of the crisis.
The slow pace of global vaccine use is also a concern for Ms. Yellen, who complained that many developing and middle-income countries have not been able to invest in robust vaccines that could harm the global economy.
“The result is likely to be a deeper and longer-lasting crisis, with increasing problems of debt, entrenched poverty and growing inequality,” Ms. Yellen said, estimating that up to 150 million people could be pushed into extreme poverty this year . “This would be a profound economic tragedy for these countries that should be important to us.”
In a sharp break with former President Donald J. Trump’s administration, Ms. Yellen stressed the importance of the United States working closely with its allies, noting that the fate of countries around the world is intertwined.
The overhaul of the international tax system is a big part of it. Corporate tax rates have fallen worldwide in recent years. Under the Trump administration, the rate in the United States was reduced from 35 percent to 21 percent. Mr. Biden wants to increase that rate to 28 percent and raise the minimum international tax rate that American companies pay on their overseas profits to 21 percent.
The Organization for Economic Co-operation and Development has worked with the United States to develop a new international tax architecture that provides a minimum global tax rate for multinational corporations to curb profit shifting and the erosion of the tax base.
Ms. Yellen said she was working with her colleagues in the Group of 20 Advanced Nations on changes to the global tax system to help prevent companies from shifting their profits to low-tax areas.
“President Biden’s proposals, announced last week, call for bold domestic action, including raising the US minimum tax rate and renewed international engagement. Said Mrs. Yellen. “We are working with the G20 countries to agree on a global minimum tax rate for companies that can stop the race to the bottom.”