Janet Yellen sees Biden tax plan bring back $2.6t in overseas profits
US Treasury Secretary Janet Yellen unveiled a detailed sales pitch for the Biden administration’s proposed new corporate-tax code, a plan that she said would be fairer to all Americans, remove incentives for companies to shift investments and profit abroad and raise more money for critical needs at home.
Expanding on the tax proposals released last week in President Joe Biden’s $US2.25 trillion ($3 trillion) economic package, the US Treasury said the changes, over a decade, would bring back about $US2 trillion ($2.6 trillion) in corporate profits into the US tax net, with about $US700 billion in federal revenue streaming in from ending incentives to shift profits overseas.
US Treasury Secretary Janet Yellen is pushing a plan that will significantly increase taxes for America’s multinational companies.Credit:AP
All told, the extra tax take of about $US2.5 trillion over 15 years would pay for Biden’s eight-year spending initiative, which is aimed at infrastructure, green investments and social programs that would support a larger labour force, according to the Treasury.
“Our tax revenues are already at their lowest levels in generations, and as they continue to drop lower we will have less money to invest in roads, bridges, broadband and R&D,” Yellen told reporters during a phone briefing. “By choosing to compete on taxes, we’ve neglected to compete on the skill of our workers and the strength of our infrastructure. It’s a self-defeating competition, which is why we’re proposing this ‘Made in America’ tax plan. It changes the game we play.”
The Treasury released a 17-page report on Wednesday that will likely serve as the road map for administration officials and lawmakers seeking to navigate the combined package of spending and tax proposals through Congress in coming months.
The key elements of the corporate tax plan include minimum taxes on both foreign earnings as well as the domestic profits that corporations report to shareholders, changes that would significantly increase the taxes companies owe.
“By choosing to compete on taxes, we’ve neglected to compete on the skill of our workers and the strength of our infrastructure. It’s a self-defeating competition, which is why we’re proposing this ‘Made in America’ tax plan. It changes the game we play.”
The tax proposals already face sharp opposition from Republican lawmakers and pushback from some moderate Democrats. West Virginia Senator Joe Manchin has said he opposes a corporate tax rate above 25 per cent. With the Senate split 50-50, Biden cannot afford to lose the support of a single Democratic senator if he wishes to push through any portion of the package.
While most business groups, including the US Chamber of Commerce and the Business Roundtable, have come out in opposition to the tax increases, some have acknowledged that there could be benefits from higher corporate taxes to fund infrastructure spending. Amazon.com Chief Executive Officer Jeff Bezos said on Tuesday that he would support a tax-rate increase, but didn’t specify a number.
The proposal for a global minimum tax comes as the Organisation for Economic Cooperation and Development is managing talks with about 140 countries, including the US, on establishing a worldwide levy on corporate profits. A global rate has yet to be decided, though prior proposals had suggested rates at roughly 12.5 per cent. Biden’s plan for 21 per cent would be significantly higher and could complicate negotiations.
The US Treasury report featured a raft of data to support the administration’s case. US-based companies that operate globally collectively paid a 7.8 per cent effective rate in 2018, the first year that former President Donald Trump’s tax cut went into effect, according to the non-partisan Joint Committee on Taxation. The year before, corporations paid 16 per cent.
Profitable companies would no longer be able to use tax breaks to completely eliminate their federal tax bills and would have to pay at least 15 per cent on the profits reported on their financial statements, known as book income.
The average company facing the tax would have an increased minimum tax liability of about $US300 million a year, the Treasury said.
Across member countries of the OECD corporate tax revenues are equivalent to an average 3.2 per cent of GDP. In the US, it’s 1 per cent, the Treasury said.
That places an unfair burden on workers, made worse by President Donald Trump’s 2017 tax changes that cut corporate levies, according to the Treasury report.
The report also points to research showing corporations put more of their savings from the Trump tax cuts into share buybacks and dividend distributions than into new investments.
Biden’s plan also calls for eliminating all subsidies specifically for oil and gas embedded in the tax code, including deductions for drilling costs. The Treasury Department estimates that would raise about $US35 billion in the coming decade.
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