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Yellen seeks minimum corporate tax rate wordlwide, warns slow pace of vaccinations may hurt economy

Treasury Secretary Janet Yellen.
Treasury Secretary Janet Yellen.Carolyn Kaster/Associated Press

Treasury Secretary Janet Yellen made the case Monday for a global minimum tax, kicking off the Biden administration’s effort to help raise revenue in the United States and prevent companies from shifting profits overseas to evade taxes.

Yellen, in a speech to the Chicago Council on Global Affairs, called for global coordination on an international tax rate that would apply to multinational corporations, regardless of where they locate their headquarters. Such a global tax could help prevent the type of “race to the bottom” that has been underway, Yellen said, referring to countries trying to outdo one another by lowering tax rates in order to attract business.

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Her remarks came as the White House and Democrats in Congress begin looking for ways to pay for President Biden’s sweeping infrastructure plan to rebuild America’s roads, bridges, water systems, and electric grid.

“Competitiveness is about more than how US-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen said. “It is about 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.”

Senator Ron Wyden, the Oregon Democrat in charge of writing tax legislation, released a new plan Monday coauthored with Senators Sherrod Brown of Ohio and Mark Warner of Virginia to overhaul the way the United States taxes multinational corporations. In addition to raising revenue, the proposal seeks to discourage companies from shifting profits and jobs to low-tax countries to avoid paying taxes in the United States. It would also create incentives through the tax code for companies to invest in research and manufacturing in the United States.

The speech represented Yellen’s most extensive comments since taking over as Treasury secretary, and she underscored the scope of the challenge.

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“Over the last four years, we have seen firsthand what happens when America steps back from the global stage,” Yellen said. “America first must never mean America alone.”

Yellen also highlighted her priorities of combating climate change and reducing global poverty, and underscored the importance of the United States helping to lead the world out of the crisis caused by the pandemic. Yellen called on countries not to pull back on fiscal support too soon and warned of growing global imbalances if some countries do withdraw before the crisis is over.

The slow pace of vaccinating people around the world is also a concern for Yellen, who lamented that many developing and middle-income countries have been unable to invest in robust rollouts of inoculations, which could hurt the global economy.

“The result will likely be a deeper and longer-lasting crisis, with mounting problems of indebtedness, more entrenched poverty and growing inequality,” Yellen said, estimating as many as 150 million people could be pushed into extreme poverty this year. “This would be a profound economic tragedy for those countries, one we should care about.”

In a sharp break with the administration of the former president, Donald Trump, Yellen emphasized the importance of the United States working closely with its allies, noting that countries’ fortunes are intertwined.

Overhauling the international tax system is a big part of that. Corporate tax rates have been falling around the world in recent years. During the Trump administration, the US rate was cut from 35 percent to 21 percent. Biden wants to raise that rate to 28 percent and increase the international minimum tax rate that US companies pay on their foreign profits to 21 percent.

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The Organization for Economic Cooperation and Development, in coordination with the United States, has been working to develop a new international tax architecture that would include a global minimum tax rate for multinational corporations as part of its effort to curtail profit-shifting and tax-base erosion.

Yellen said she’s working with her counterparts in the Group of 20 advanced nations on changes to the global tax system that would help prevent businesses from shifting profits to low-tax jurisdictions.

“President Biden’s proposals announced last week call for bold domestic action, including to raise the US minimum tax rate, and renewed international engagement, recognizing that it is important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” Yellen said. “We are working with G-20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom.”

The plans released by Wyden, Brown, and Warner calls for higher levies on offshore profits and stronger penalties for companies that move income outside the country to avoid paying taxes to the Internal Revenue Service. The plan stops short of calling for any specific rate levels and seeks feedback on the ideas as lawmakers work to draft legislation.

The plan could serve as an alternative or an addition to the corporate and international tax overhaul that Biden released last week. Along with boosting the corporate income tax rate, the White House plan calls for a revamp of the complicated matrix of carrot-and-stick incentives implemented in 2018 that govern how US companies pay taxes on foreign profits.

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On Monday, Senator Joe Manchin, Democrat of West Virginia, said he’d vote against Biden’s proposal to raise the corporate tax rate to 28 percent, saying it should be 25 percent. Even if all other Democrats support the plan, Manchin’s opposition would probably be enough to kill it, because the Senate is split 50-50 between Democrats and Republicans.

Material from The Washington Post and Bloomberg News was used in this report.