It's an idea that has been debated widely across global capitals: impose the same minimum corporate tax rate all over the world to prevent companies from shopping around for the country that can offer the smallest tax bill.
Now, it has a powerful new adherent. Treasury Secretary Janet Yellen on Monday expressed support for a minimum tax rate, providing the vital backing of the U.S. government.
Yellen, in a speech, said a minimum global tax rate would stop what she described as a "30-year race to the bottom" that has allowed big corporations to avoid contributing fully to vital national needs.
The support for a global tax rate is a new plank in the Biden administration's tougher approach to corporate taxes.
President Biden is already counting on higher corporate tax revenues to fund his administration's $2.3 trillion infrastructure plan.
Yellen's endorsement of a global minimum tax rate is now meant to ensure that companies pay a minimum amount of tax no matter where they are based — reducing the temptation to relocate to another country. It would also ensure that higher tax rates at home don't put U.S. companies at such a large global disadvantage.
"It's important to work with other countries to end the pressures of tax competition," Yellen told the Chicago Council on Global Affairs. "We're working with G-20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom."
It's not clear that low-tax countries would embrace a higher global minimum. Ireland, for example, has derived a major competitive advantage with a lower tax regimen, attracting the likes of Apple to the country.
That has often pitted Ireland against higher-tax governments. But the global minimum tax rate has generally been strongly opposed by corporations, making it unclear whether countries will end up agreeing on the proposal.
In the United States, business groups like the U.S. Chamber of Commerce have already said they oppose the Biden administration's plan to raise corporate taxes to fund infrastructure, even if they applaud increased investment in areas like roads, ports and broadband.
Biden's plan would raise the tax rate on corporations from 21% to 28%, while also taxing companies' foreign income at a rate of at least 21%. The administration says the plan would raise enough revenue over 15 years to cover eight years of spending on infrastructure.
The corporate tax rate was 35% before the 2017 tax cut by the Trump administration. But companies are often able to lower their tax bill through various deductions or by parking profits in low-tax havens overseas.
The left-leaning Institute on Taxation and Economic Policy notes that 55 big corporations — including Nike, FedEx and Duke Energy — paid no federal income taxes in the most recent fiscal year, despite reporting a collective profit of more than $40 billion to their shareholders.
As a share of the overall economy, U.S. corporations pay lower taxes than many of their foreign competitors. Corporate tax revenues at the federal, state and local levels in the U.S. are 1% of GDP, compared with about 2% in Germany, France and Italy and around 4% in Japan and Canada.
Yellen said it's important that "all citizens fairly share the burden of financing government."
"Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger-and-acquisition bids," Yellen also argued. "It's about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises."
AILSA CHANG, HOST:
The Biden administration says it is time for countries to stop fighting over who can offer businesses the smallest tax bill. Treasury Secretary Janet Yellen proposed today a global minimum tax rate for corporations. It's designed to reverse a decades-long pattern in which countries undercut one another by steadily decreasing their corporate tax rates.
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JANET YELLEN: It's important to work with other countries to end the pressures of tax competition and corporate tax base erosion. We're working with G-20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom.
CHANG: Well, this proposal comes as the administration is counting on higher corporate taxes to bankroll its $2.3 trillion infrastructure plan. For more, we're joined now by NPR's Scott Horsley.
SCOTT HORSLEY, BYLINE: Hi.
CHANG: All right, so what is the basic idea behind a global minimum tax? And why is the administration pushing this now?
HORSLEY: Well, as we've been saying for the last week, the Biden administration has big ambitions for its infrastructure plan. It wants to invest trillions of dollars in better highways and faster Internet and cleaner water pipes and a smarter electric grid, and it's planning to send the bill for all those investments to corporations in the form of higher taxes on corporate profits. Some U.S. businesses are saying, wait a minute - we like the idea of all that infrastructure spending, but if corporations have to pay for it, then U.S. companies are going to be less competitive than their rival elsewhere that aren't saddled with those costs. They say it could even drive companies out of the U.S. into lower tax havens overseas.
So the administration hopes to fight that by negotiating a minimum corporate tax that every country would assess. Here's how Secretary Yellen described it in a speech to the Chicago Council on Global Affairs.
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YELLEN: It's 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.
HORSLEY: This is an interesting argument about what makes businesses competitive. For years, Republicans have argued that low taxes put more money in the hands of businesses, which they can invest to become more productive. But the administration is saying, you know, government investment in things like the interstate highway system or R&D that gave rise to the Internet is also an important part of creating a competitive landscape. And they argue the government needs resources to make those kinds of investments, and if tax rates are too low, it can be counterproductive.
CHANG: Well, are other countries even likely to go along with a minimum tax rate, do you think?
HORSLEY: It's far from certain that every country would go along. You know, in the aggregate, a deal like this might be good for government coffers, but countries like Ireland have had a lot of success using low taxes as a magnet to lure big companies to their shores. And so even though it might be a race to the bottom, some countries are likely to keep running.
CHANG: Well, how do corporate taxes in the U.S. compare to other countries right now?
HORSLEY: They're actually pretty low compared to other industrial democracies, for example. If you look at the total tax bill as a share of their economies, France, Germany, Italy collect about twice as much from corporations as the U.S. does. Japan and Canada collect about four times as much. The official corporate tax rate is 21%, and Biden wants to boost that to 28%. But most companies pay a much lower rate thanks to deductions and other tax breaks. The average multinational corporation paid about 8% the year after the big GOP tax cut was passed, and last year, Ailsa, there were dozens of big companies that paid no federal taxes at all.
CHANG: That is NPR's Scott Horsley.
Thank you, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.