In her first major address as Treasury Secretary, Janet Yellen made a bold assertion on Monday, calling for a global minimum corporate tax rate.
One of the consequences of an interconnected world she explained, “has been a 30-year race to the bottom on corporate tax rates.”
To address the competitiveness of other countries’ lower tax rates (consider Ireland’s enticing 12%), the Treasury Secretary says her team is working with developed countries to establish a single minimum global rate. “We’re working with G20 nations,” she explained, “to agree to a global minimum corporate tax rate that can stop the 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 added, “Competitiveness is about more than how US headquartered companies fare against other companies in global merger and acquisition bids,” she said. “It’s about making sure the governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”
The United States was home to the highest corporate tax rate in the world until the Trump administration lowered business taxes to 21%. Throughout the previous Obama-Biden term, numerous American companies got so fed up with high tax rates that they relocated their headquarters overseas through tax inversion style mergers.
In these transactions, American companies would merge with a foreign corporation in a kind of mail-order bridge arrangement. In these loveless transactions, American companies would buy a foreign counterpart to get a new passport — and the far lower taxes that came with it.
That move saved American companies billions on tax rates but cost America thousands of jobs and lost tax revenues. To address the issue, the Trump economic team took away the incentive for companies to relocate by lowering taxes.
The Biden Administration, however, is determined to reengineer everyone ELSE’S tax rates in the developed world.
Somehow, I don’t think this will go over as well as Yellen and Biden hope.
President Biden hopes to raise the corporate tax rate to 28% from its current 21%. And, that action WILL drive some American companies to relocate overseas. And emerging market countries will be first in line to benefit.
