WASHINGTON – U.S. Treasury Secretary Janet Yellen on Monday urged the adoption of a minimum global corporate income tax, an effort to at least partially 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 in an effort 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 just 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.
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.
Yellen’s remarks essentially serve as an endorsement of negotiations that have been underway at the 37-nation Organization for Economic Cooperation and Development for roughly two years, said Alan Auerbach, an economist at the University of California at Berkeley.
Biden's U.S. corporate tax proposal includes an increase to the U.S. minimum tax that was included in Trump's tax law, from 10.5% to 21%. One focus of the OECD talks is whether other countries will adopt similar minimums. Biden's corporate tax measure would also penalize other countries without a minimum corporate tax by more heavily taxing their subsidiaries in the U.S.