Yellen, in a speech to the Chicago Council on Global Affairs, called for global coordination on an international tax rate that would apply to multinational corporations, regardless of where they locate their headquarters. Such a global tax could help prevent the type of “race to the bottom” that has been underway, Yellen said, referring to countries trying to outdo one another by lowering tax rates in order to attract business.
Her remarks came as the White House and Democrats in Congress begin looking for ways to pay for President Joe Biden’s sweeping infrastructure plan to rebuild America's roads, bridges, water systems and electric grid.
“Competitiveness is about more than how US-headquartered companies fare against other companies in global merger and acquisition bids,” Yellen said. “It is about making sure that 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 speech represented Yellen's most extensive comments since taking over as Treasury secretary, and she underscored the scope of the challenge ahead.
“Over the last four years, we have seen firsthand what happens when America steps back from the global stage,” Yellen said. “America first must never mean America alone.”
Yellen also highlighted her priorities of combating climate change, reducing global poverty and the importance of the United States helping to lead the world out of the crisis caused by the pandemic. Yellen also called on countries not to pull back on fiscal support too soon and warned of growing global imbalances if some countries do withdraw before the crisis is over.
In a sharp break with the administration of former President Donald Trump, Yellen emphasised the importance of the United States working closely with its allies, noting that the fortunes of countries around the world are intertwined.
Overhauling the international tax system is a big part of that. Corporate tax rates have been falling around the world in recent years. Under the Trump administration, the US rate was cut from 35% to 21%. Biden wants to raise that rate to 28% and increase the international minimum tax rate that US companies pay on their foreign profits to 21%.
The Organization for Economic Cooperation and Development, in coordination with the United States, has been working to develop a new international tax architecture that would include a global minimum tax rate for multinational corporations as part of its effort to curtail profit shifting and tax base erosion.
Yellen said she is working with her counterparts in the Group of 20 advanced nations on changes to the global tax system that will help prevent businesses from shifting profits to low-tax jurisdictions.
“President Biden’s proposals announced last week call for bold domestic action, including to raise the US minimum tax rate, and renewed international engagement, recognizing that it is important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” Yellen said. “We are working with G-20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom.”
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