On May 18, Department of the Treasury Secretary Janet Yellen addressed the U.S. Chamber of Commerce at their Global Forum on Economic Recovery, continuing her pitch to raise corporate taxes and reduce or eliminate the current incentives for sourcing corporate profits off-shore to low-tax countries. Secretary Yellen’s remarks to the Chamber come at the same time the Chamber seeks to prevent those corporate tax increases.
Are Corporate Profit-Shifting to Low-Tax Off-Shore Jurisdictions at Risk?
Secretary Yellen’s pitch is that “with corporate taxes at a historic low of 1% of GDP, [she believes] that the corporate sector can contribute to [reducing inequality and rebuilding the country’s infrastructure] by bearing its fair share. We propose to return the corporate tax toward its historical norms.” Since 1995, through the Trump tax reform legislation in 2018, the typical highest corporate marginal rate was 35%, which, when reduced by Trump’s tax reform, became a maximum 21% rate.
Continuing her assault on corporate profit shifting, Secretary Yellen stated, “At the same time, we want to eliminate incentives that reward corporations for moving their operations overseas and shifting profits to low-tax countries. As part of this effort, we are working with our international partners on a global minimum corporate tax to stop the race to the bottom.”
Secretary Yellen’s message to the Chamber comes at the same time the Chamber is making a focused effort to prevent corporate tax increases. The Chamber president, Suzanne P. Clark, opened the global forum by reiterating the business community’s opposition to raising corporate taxes, stating that it would make the country less competitive. “The data and the evidence are clear,” Clark stated. “Tax increases would greatly disadvantage American businesses. There are other ways to finance it.”
Are U.S. Tax Hikes Coming?
As part of his $4,100,000,000,000 (that’s $4.1 trillion) infrastructure and family support plans, President Biden proposed raising the corporate tax rate to 28% from its current 21%. At this point, key moderate Democrats have signaled they are only willing to raise the rate to 25%. Senate Republicans continue to obfuscate both Biden’s proposals and those of moderate Democrats refusing to revisit Trump’s 2018 corporate tax cuts.
Finally, Secretary Yellen said that the move over the years to smaller government and lower taxes has led to under-investment in infrastructure, family support, and new programs to address modern economic problems. “This approach to U.S. fiscal policy, founded on a distrust of government motives and effectiveness, along with resistance to higher taxes, has had profound effects on our nation and our people. We are confident that the investments and tax proposals in the Jobs Plan, taken as a package, will enhance the net profitability of our corporations and improve their global competitiveness. We hope that business leaders will see it this way and support the Jobs Plan.”