Treasury Secretary Janet Yellen introduced Wednesday a plan to pay for President Joe Biden’s $2 trillion spending package by raising corporate tax rates and cracking down on evasion of taxes on corporate foreign earnings.
The most major change in the tax proposal, which has been dubbed the “Made in America” plan, is to hike the corporate tax rate from 21% to 28%. The domestic corporate rate was previously lowered from 35% as part of former President Donald Trump’s 2017 Tax Cuts and Jobs Act.
“Over the past three years, corporate tax collections have fallen to their lowest level since World War II, 1% of GDP,” Yellen told reporters in announcing the plan.
In an effort to raise further revenues from multinational companies that do business overseas, the Biden administration is looking to boost the global minimum tax applied to U.S. corporations to 21% from between 10.5% and 13%.
BIDEN INFRASTRUCTURE PLAN FUNDED BY CORPORATE TAXES, IMPERILING BUSINESS SUPPORT
The administration claims that the Made in America plan would add about 0.5% of GDP per year in corporate revenue, which they claim will be enough money to offset Biden’s proposed infrastructure package in 15 years. A Treasury official said that in terms of the total dollar amount, the plan is expected to raise about $2.5 trillion over that time period, which eclipses the cost of Biden’s eight-year spending package.
Treasury officials said during a phone call with reporters that the United States brings in less in corporate tax revenues as a share of gross domestic product than almost any other advanced economy in the Organization for Economic Co-operation and Development. It also hopes to recoup some of that lost revenue through cracking down on tax avoidance by companies with foreign investments.
Yellen spoke about preventing a “race to the bottom” among countries lowering their corporate tax rates to compete with one another.
“When other countries see us lower our rates, they lower theirs to undercut us. The result is just a global race to the bottom on corporate taxes,” she said, claiming that Trump’s plan caused this to occur. “The law actually incentivizes American companies to offshore their workers and investments and to shift their profits to tax havens.”
Yellen recently came out in favor of a global minimum tax rate, which means that countries would all agree that their corporate tax rate would not dip below a pre-set level. During the Wednesday phone call with reporters, a treasury official said that Biden’s plan gives countries a heavy incentive to adopt a global minimum tax.
The official said there has been a positive reception to the concept of a global minimum tax among other countries abroad. The official also expressed optimism that there wouldn’t be too large of a gap between the domestic minimum rate and the proposed global minimum.
The proposal is facing Republican opposition and opposition among those in the business community. The U.S. Chamber of Commerce and Business Roundtable have both come out with statements saying that while they support infrastructure investment, they oppose the administration’s plans to raise the corporate tax rate.
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Amazon CEO Jeff Bezos, who has been facing a torrent of criticism over how his company treats warehouse workers amid a union push at a facility in Alabama, announced Amazon’s support for the proposed 7-percentage-point hike on Tuesday.
