The U.S. is taking a two-pronged approach toward its goal of implementing a worldwide minimum tax for corporations as it progresses through negotiations with a global consortium, Treasury Secretary Janet Yellen said Tuesday.
Getting countries around the world to implement a bottom level tax that all companies pay has been a goal the White House has set to stop firms from relocating their home operations to countries with cheaper rates.
That objective has taken on greater urgency as the administration seeks to raise taxes on U.S. companies. Yellen said she’s encouraged so far by developments in talks with other countries.
Along with the increase in the U.S. tax, “we propose to raise the global minimum tax and to close tax loopholes that allow American corporations to shift earnings abroad,” she told The Wall Street Journal’s CEO Council Summit.
Yellen said the U.S. has been in talks with member nations in the Organization for Economic Cooperation and Development.
“We are very actively engaged with other countries to end what has been a global corporate tax race to the bottom,” she said. “I fear this race to the bottom globally with respect to corporate taxes is depriving economies of the revenue they really need to invest in infrastructure, education, research and development and other things to spur growth and also impact corporate competitiveness.”
“So we’re asking companies to step up and pay a little bit more to help realize fiscal priorities that are equally important in making them competitive and doing it in a context where we’ll see an increase in global rates as well,” she said.
A few countries have stated publicly that they endorse the global minimum tax idea, though it remains unpopular in some quarters. U.S. companies have long engaged in “offshoring” practices where they establish domiciles in low-tax countries, even though they conduct much of their business domestically.
The Trump administration slashed the corporate tax rate to 21%, which President Joe Biden wants to raise to 28%. In addition, the 2017 tax cuts provided incentives for companies to repatriate profits they had stored overseas.
At an appearance earlier in the day, Yellen said the tax cuts did little to spur investment and instead sparked share buybacks and dividend issuance for investors.
Aside from the negotiations over the tax level, the administration also is seeking agreement on how other countries are taxing American firms. That is actually the first of what Yellen described as two “pillars” of talks it is having with nations in the Organization for Economic Cooperation and Development.
“Pillar two is about global minimum taxes and pillar one is about these taxes that so far have been levied by some individual countries on American firms,” she said. “We’ve made a proposal to broaden the coverage of pillar one so that it’s not just about U.S. tech companies, so that it’s about the most profitable large corporations operation regardless of sector globally, and we’re hopeful we can come to an agreement on both pillars.”
Yellen said the administration is looking for ways to discourage companies from deducting tax payments they make to tax-haven nations.