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US pushes to end corporate tax ‘race to the bottom’

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Janet Yellen

Scott Mlyn | CNBC

The United States is taking a two-pronged approach to meeting its goal of implementing a global minimum tax for businesses as it moves forward in negotiations with a global consortium, Treasury Secretary Janet Yellen said on Tuesday. .

Getting countries around the world to implement a low-level tax that all businesses pay is a goal the White House has set itself to prevent businesses from relocating their domestic operations to countries with cheaper tariffs.

This goal has become increasingly urgent as the administration seeks to raise taxes on American businesses. Yellen said she was so far encouraged by developments in negotiations with other countries.

Along with the increase in US taxes, “we are proposing to increase the global minimum tax and close tax loopholes that allow US companies to shift their profits overseas,” she told CEO Council Summit of the Wall Street Journal.

Yellen said the United States was in talks with member countries of the Organization for Economic Co-operation and Development.

“We are very actively engaged with other countries to end what has been a global race to lower corporate taxes,” she said. “I’m concerned that this global race to the bottom on corporate taxes is robbing economies of the income they really need to invest in infrastructure, education, research and development and other things to stimulate growth and also have an impact on the competitiveness of companies.

“We are therefore asking companies to step up and pay a little more to help them achieve budgetary priorities which are just as important to make them competitive and to do so in a context where we will also see an increase in global rates”, at she mentioned.

A few countries have publicly stated that they support the overall idea of ​​the minimum tax, although it remains unpopular in some quarters. US businesses have a long history of “offshoring” where they establish homes in low-tax countries, even though they do much of their business domestically.

The Trump administration has cut the corporate tax rate to 21%, which President Joe Biden wants to raise to 28%. In addition, the 2017 tax cuts prompted companies to repatriate profits they had stored abroad.

In an appearance earlier today, Yellen said the tax cuts had done little to boost investment and instead triggered share buybacks and dividend issuances for investors.

In addition to negotiations on the level of taxation, the administration is also seeking to agree on how other countries tax American companies. It is, in fact, the first of what Yellen has described as two “pillars” of talks he has with nations within the Organization for Economic Co-operation and Development.

“The second pillar concerns global minimum taxes and the first pillar concerns those taxes which until now have been levied by some countries on American companies,” she said. “We have proposed expanding the coverage of the first pillar so that it is not just US technology companies, so it is the most profitable large business operations, regardless of industry,” globally, and we hope to be able to reach an agreement. on the two pillars. “

Yellen said the administration was looking for ways to discourage companies from deducting tax payments they make to paradise countries.

Ultimately, she said companies would pay more taxes in the United States, but she said the revenues are needed to help fund the expansive spending programs on the administration’s agenda.

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