Raising US corporate taxes could spur similar moves by other countries and hasten the establishment of a global minimum corporate tax, US Treasury Secretary Janet Yellen said on Wednesday.
President Joe Biden last week unveiled a $2 trillion jobs and infrastructure plan paid for in part by an increase in the domestic corporate tax rate, which was lowered in 2017, and by sweeping up more of profits stashed overseas.
A unilateral tax hike could put the United States at a disadvantage with other nations with lower rates, but Yellen predicted the proposed increase would encourage other countries to end the competition over providing corporations the most favorable tax climate.
"We're not only ending America's participation in the race to the bottom. The tax plan incentivizes the whole world to give up the game," Yellen told reporters.
"Destructive tax competition will only end when enough major economies stop undercutting one another and agree to a global minimum tax, and this proposal includes some powerful incentives for nations to do that."
Yellen earlier this week announced that Washington would push the G20 for an agreement on a global minimum corporate tax to stem the erosion of government revenues, and the bloc is expected to unveil a proposal by July.
G20 finance ministers met Wednesday and agree to continue work on a "globally fair, sustainable and modern international tax system."
US Treasury Secretary Janet Yellen is leading the push for nations to adopt a global minimum tax to end competition over who can provide the most favorable tax climate to corporations Photo: GETTY IMAGES NORTH AMERICA / POOL
Biden's proposal partially reverse the move by his predecessor Donald Trump, who pushed a corporate tax cut through Congress in 2017, that Yellen said cost the United States jobs and tax revenue.
"The law actually incentivizes American companies to offshore their workers and investments and to shift their profits to tax havens," she said.
"Simply put, by choosing to compete on taxes, we've neglected to compete on the skill of our workers and the strength of our infrastructure," Yellen said.
Biden's plan would raise the official rate to 28 percent from 21 percent, and increase the minimum tax on multinationals to 21 percent, "ending the ability of multinationals to shield income in tax havens from U.S. taxes," according to the Treasury proposal.
However, the US tax rate would remain about seven percentage points below the level prior to the 2017 reform, and be coupled with a host of reforms the Treasury Department said would result in $2 trillion in corporate profits being taxed over the next decades.
The Treasury said corporations actually pay much less than the official tax rate, with an effective rate currently of just 8 percent "the result of a combination of profit shifting and tax preferences that allow large companies to shrink their tax burdens."
"In a typical year, around 200 companies report net income of $2 billion or more. Of these, a significant share pay zero or negative federal income taxes, despite reporting hundreds of billions of dollars in profits to shareholders," the report said.
