In remarks made Monday, Treasury Secretary Janet Yellen called for a global minimum tax. She wants the tax to help raise revenues for the US. At the same time, it can prevent companies from shifting profits abroad to evade taxes.
Preventing Countries To Race to the Bottom
Speaking at the Chicago Council on Global Affairs, Yellen called for more coordination on international tax rates. This applies to multinational companies regardless of where they locate their headquarters. Yellen said that a global tax can help prevent countries from racing to the bottom. This is what happens when countries try to offer lower taxes to entice businesses to move there.
Yellen delivered her remarks as Democrats scramble to find ways to increase revenues. They are looking for ways to pay for President Joe Biden’s ambitious infrastructure plan. The $2 trillion program wants to rebuild roads, bridges, water pipes, and electric grids. “Competitiveness is about more than how US-headquartered companies fare against other companies in global merger and acquisition bids. 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 the government,” Yellen remarked.
Wyder to Propose An Overhaul of MNC Taxes
Meanwhile, Senator Ron Wyden (D-OR), is the designated author for new tax legislation. He plans to submit a new tax plan on Monday that overhauls taxes for multinational companies. The Dems seek to raise funds to support Biden’s many spending programs. For this tax plan, the proposal’s co-authors are Democrat Senators Sherrod Brown (OH) and Mark Warner (VA).
Apart from raising revenue, the new bill aims to discourage companies from moving profits and jobs to lower-tax countries to avoid paying US taxes. In addition, the bill will create new incentives for companies that will invest in research and manufacturing within the US.
“America First Must Never Mean America Alone”
Yellen’s Chicago speech contains some of the secretary’s most extensive comments since taking over the Treasury department. She also highlighted the challenges ahead for the country. “Over the last four years, we have seen firsthand what happens when America steps back from the global stage. America first must never mean America alone,” Yellen said.
In traditional Democrat fashion, Yellen highlighted the need for combating climate change and reducing global poverty. Also, she underscored the importance of the United States helping to lead the world out of the coronavirus pandemic crisis. She called on countries to not withdraw fiscal support too soon. In addition, she warned of growing global imbalances if some countries do withdraw support before the crisis ended.
America’s Yoyoing Tax Rates
Yellen also questioned the slow pace of coronavirus vaccine deployment around the world. She said many developing and middle-income countries did not invest in vaccine rollouts. Consequently, this could hurt the global economy by delaying recovery.
The Treasury secretary estimated that as many as 150 million people can fall down to poverty levels this year. “The result will likely be a deeper and longer-lasting crisis, with mounting problems of indebtedness, more entrenched poverty, and growing inequality. This would be a profound economic tragedy for those countries, one we should care about,” she noted.
Corporate tax rates have been falling around the world in recent years, including in the US. However, Biden plans to re-raise the tax rates (which Trump reduced from 35% to 21%) back to 28%. Then, the administration wants companies to pay 21% taxes on their foreign profits
Need for a Global Minimum Tax Rate
.In addition, Yellen went back to emphasize the need for the US to work with allies. Overhauling the international tax system is a start. The Organization for Economic Cooperation and Development (OECD), is currently working with the US to develop a new international tax architecture that includes a global minimum tax rate for multinational corporations. This is part of their efforts to cut down on profit shifting and tax base erosion. Yellen said she is working with her G20 counterparts on changes to the global tax system.
“President Biden’s proposals announced last week called 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. We are working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom,” Yellen said.
Watch the CNBC News video where Treasury Secretary Janet Yellen calls for a global minimum tax for multinational companies:
Will A Global Minimum Tax Rate Work?
Do you agree with Treasury Secretary Janet Yellen for a global minimum tax for multinational companies? In addition, do you think it will help encourage companies to pay taxes in their home countries? Let us know what you think of the global minimum tax rate. Share your thoughts in the comments section below.