The Biden administration proposes substantial tax increases on U.S. corporations to pay for the $2.3 trillion plan in order to boost investment in infrastructure, clean energy, manufacturing, housing, and other programs.
Amid concerns that a higher corporate tax rate would damage the country’s market competitiveness, Yellen announced on April 5 that the United States is working with the Group of 20 (G-20) countries to adopt a minimum global corporate income tax.
Biden’s eight-year infrastructure plan is to be fully paid for by tax increases on companies spread over 15 years. His proposal is to boost the federal corporate tax rate to 28 percent from the current 21 percent.
Yellen noted if an agreement among G-20 economies is reached on the minimum corporate tax, it would end “a 30-year race to the bottom.”
“Together, we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity,” she declared.
Both France and Germany, which have relatively high corporate tax rates in the OECD welcomed the Biden administration’s proposal.
“We are delighted by the U.S. support for a minimum corporate tax,” French Finance Minister Bruno Le Maire told AFP.
“An agreement on international taxation is now within reach,” he noted. “We must seize this historic opportunity.”
The average statutory corporate tax rate among Organization for Economic Co-operation and Development (OECD) countries had fallen to 23.3 percent in 2020 from 32.2 percent in 2000, according to a report by the Treasury Department.
The report, which outlines Biden’s “Made in America tax plan” stated that the declines have resulted from a “collective action problem.” Fierce competition among countries to attract investments has fueled this “race to the bottom,” according to the report, and a better coordination across the globe will prevent companies from relocating to countries with lower taxes.
During this week’s virtual spring meeting of the International Monetary Fund (IMF) and the World Bank, IMF Managing Director Kristalina Georgieva also called for “progressive taxation” and an agreement on “minimum taxation for companies.”
The IMF has long supported a global minimum tax, according to IMF’s top economist Gita Gopinath.
“It is a big concern that we have a large amount of tax shifting, tax avoidance, countries sending money to tax havens, and that’s reducing the tax base from which governments can collect revenues and do the necessary social and economic spending that’s required,” Gopinath told reporters. “So we are very much in favor of a global minimum corporate tax.”
OECD officials earlier floated a minimum corporate rate of 12.5 percent. Yellen, however, proposed agreeing to a minimum tax rate of 21 percent.
World Bank President David Malpass warned governments against setting a minimum tax rate that is too high.