U.S. Treasury Secretary Janet Yellen called on Monday for a global minimum corporate tax rate, pledging to work with other countries “to end the pressures of tax competition and corporate tax base erosion.”
Yellen said Treasury seeks in talks with G-20 nations to achieve a minimum corporate rate that ensures “the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity.”
- Improving competitiveness should include “making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government,” Yellen said in a speech to the Chicago Council on Global Affairs.
President Biden on Wednesday proposed a $2 trillion package in infrastructure spending that would be financed in part by raising corporate taxes, including an increase in the corporate tax rate to 28% from 21%.
Yellen described the infrastructure proposal and $1.9 trillion in pandemic aid signed by Biden last month as demonstrating Washington’s determination to “help lead the world out of the dual crises of pandemic and economic recession.” A minimum global corporate tax rate would support renewed growth by helping achieve fair and stable taxation, she said.
The Biden administration believes “it is important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” Yellen said, deploring what she saw as a “30-year race to the bottom on corporate tax rates.”
The U.S. raises much less corporate tax revenue than its trading partners, Kimberly Clausing, Treasury Deputy Assistant Secretary for tax analysis, said in testimony to the Senate Finance Committee last month.
The typical country in the Organization for Economic Cooperation and Development raised the equivalent of about 3% of gross domestic product in corporate taxation in 2018 and 2019 compared with 1% raised by the U.S. government, Clausing said.
“Corporate tax revenues are low despite the fact that U.S. companies produce very high corporate profits, both in historic and comparative terms,” Clausing said. “Indeed, the U.S. corporate sector is the most successful in the world.”
Critics say that an increase of the corporate tax rate to 28% could undermine U.S. competitiveness. The Tax Foundation estimates that the tax hike would push up the U.S. federal-state combined tax rate to 32.34% — the highest level in the OECD.
The higher corporate tax would erode long-run economic output by 0.8%, eliminate 159,000 jobs and reduce wages by 0.7%, while increasing the cost of investment and harming U.S. competitiveness, the Tax Foundation said.
“This tax increase will have a dramatic and long-lasting adverse impact on business, which will then adversely affect both employees and consumers,” said Robert Nickell, CEO of Rocket Station, which provides outsourcing services to small- and medium-sized businesses.
“When tax rates go up, companies will always find ways to offset the cost — that's been proven time and time again,” he said.
Agreement on a global minimum corporate tax rate would not necessarily achieve a high level of parity in taxation, according to Todd Simmens, national managing partner for tax risk management at BDO. Countries could impose a higher rate than the minimum, tax different business activities and allow different deductions.
“A global minimum tax rate is not the end of the inquiry,” he said. “There has to be in my mind uniform agreement to adopt such a minimum rate and to administer the tax system” in similar ways.