WASHINGTON—Treasury Secretary Janet Yellen is urging other countries to support a global minimum tax rate for corporations, which is crucial for funding President Joe Biden’s infrastructure proposal, called the American Jobs Plan.
The Biden administration proposes substantial tax increases on U.S. corporations to pay for the $2.3 trillion plan aimed at boosting investment in infrastructure, clean energy, manufacturing, housing, and other programs.
Amid concerns that a higher corporate tax rate would hurt 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 21 percent.
Yellen said 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 said.
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.
German Finance Minister Olaf Scholz also hailed Yellen’s proposal.
“I’m in high spirits that with this corporate taxation initiative, we’ll manage to put an end to the worldwide race to the bottom in taxation,” Scholz said, according to Reuters.
However, Ireland, which has one of the lowest corporate tax rates in the OECD (12.5 percent), voiced concerns about a global minimum tax. The country has chosen a low tax model to attract foreign investment.
“When the U.S. cut the federal statutory corporate rate from 35 percent to 21 percent in 2017, it was not leading a race to the bottom but moving to the average.”
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.
“The critical thing is to have growth for countries around the world,” Malpass told BBC.
Yellen’s proposal of a 21 percent global minimum tax “strikes me as a high corporate rate,” he said.
