Janet Yellen Seeks Global Minimum Corporate Tax Rate

06 Apr 2021 · 3rd Party Analysis

Janet Yellen Seeks Global Minimum Corporate Tax Rate


In Summary

  • Treasury Secretary Janet Yellen calls for a level playing field on taxes
  • Joe Biden’s tax rate hike from 21% to 28% already faces strong opposition

This week, global leaders are gathering virtually for the annual spring meetings of the International Monetary Fund and the World Bank. As the events were commencing yesterday, the US Treasury Secretary, Janet Yellen introduced her new idea of a global minimum corporate tax.

“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,” Janet Yellen said in her speech before the Chicago Board on Global Affairs. The proposal of a global minimum corporate tax comes while President Joe Biden is asking for an increase of the US corporate tax rate from 21% to 28%. He intends to use the higher rate to pay for the new multitrillion-dollar infrastructure plan. A global minimum corporate tax, however, would set a level that multinational corporations would have to abide by.

US companies are already complaining that higher taxes will make them less competitive outside the US. This was the reason Donald Trump, the former President, lowered the US rate from 35% to 21%, arguing that the American business needed to be incentivized to stay in the US, rather than to seek offshore relocations. Ms. Yellen aims to create a system where all of the US trading partners and investment locations tax their companies at the same level, essentially reducing the likelihood that a US company will try to circumvent the system by moving to an offshore zone

Taxation Gone Global?

The idea of a global minimum tax rate is not particularly new. Previous Democratic administrations, particularly Barack Obama, tried to implement the concept but were not able to achieve it. The Biden administration’s decision to renew these efforts has already been met by opposition from Democrats, Republicans, and business groups. While negotiations have started and are intensifying, the outcome remains uncertain.

President Biden first needs to make sure he will be able to convince lawmakers to approve the US rate hike to 28%, included in his $2.3tn American Jobs Plan focused on infrastructure. To do that, Mr. Biden must have every Democratic Senator’s vote in the chamber split 50-50. Less than a week after the President proposed the measure, centrist Senator Joe Manchin said he will not support it.

“As the bill exists today, it needs to be changed,” Mr. Manchin said in a radio interview, adding “If I don’t vote to get on it, it’s not going anywhere.” He also said he is willing to support a rate hike up to 25% because more than that will hurt US global competitiveness. “It’s more than just me,” Mr. Manchin commented. “There’s six or seven other Democrats who feel very strongly about this. We have to be competitive, and we’re not going to throw caution to the wind.”

Negotiations over the domestic tax rate hike and the global minimum corporate tax are yet to heat up in the weeks to come.

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