Janet Yellen, President-elect Joe Biden’s choice for Treasury secretary, testified Tuesday that the U.S. could afford a higher corporate tax rate if it coordinates with other economies around the globe.
“We look forward to actively working with other countries through the [Organization for Economic Cooperation and Development] negotiations on taxes on multinational corporations to try to stop what has been a destructive, global race to the bottom on corporate taxation,” she said in response to a question from Sen. Mike Crapo, R-Idaho.
“In that context, we would assure the competitiveness of American corporations even with a somewhat higher corporate tax,” she added, referring to what could be a coordinated effort to bolster corporate rates.
During his presidential campaign, Biden proposed raising the corporate rate to 28% from the current 21%. Prior to the 2017 tax cuts, the U.S. corporate rate was 35%.
Still, Yellen was quick to caution that any plan to seek a higher corporate rate could start only after the administration felt that the U.S. had overcome the coronavirus.
Yellen’s comments came during her testimony before the Senate Finance Committee, which will debate whether she should be confirmed for the Cabinet role. If confirmed by the Senate, Yellen would be the first woman to lead the Treasury Department.
Biden “has said that eventually, as part of a larger package that would include significant spending and investment proposals — not now while the pandemic is really depressing the economy — that he would want to repeal parts of the 2017 tax cuts that benefited the highest-income Americans and large companies,” Yellen said.
“He wants to reverse the law’s incentives to offshore operations and profits. But he has been very clear that he does not support a complete repeal of the 2017 tax law,” she added.
Yellen, 74, also promised lawmakers that she would prioritize the needs of everyday workers and ensure that the U.S. can offer well-paying jobs to workers in cities and rural areas.
In that light, she defended Biden’s $1.9 trillion stimulus plan, saying the bill would provide relief to struggling households and businesses and offer the U.S. economy the most “bang for the buck.” The measure includes another round of checks, extended and enhanced jobless benefits, funding for universities and the creation of a nationwide vaccine program.
The former Federal Reserve chair said higher corporate rates would come as part of a broader plan to reverse parts of President Donald Trump’s 2017 tax law when the economy is strong enough to stomach higher levies.
A principal goal of Trump’s Tax Cuts and Jobs Act was to spur U.S. companies to bring foreign profits to the U.S. and away from low-tax jurisdictions like Ireland and Bermuda. Before the bill, many multinational companies would establish subsidiaries in such low-tax havens as a backdoor way of protecting profits from U.S. collectors.
An American manufacturer, for example, could buy goods from its Ireland-based subsidiary, book the profits at a lower rate, and sell the goods in the United States. This is what Yellen referred to as a global “race to the bottom” of the corporate tax ladder, a worldwide competition to attract companies with lower and lower rates.
The OECD has for years sought a solution to the downward spiral. In late 2019, the body proposed a global minimum tax that would apply to companies with income from cross-border activities that pay taxes below a certain level.
What Yellen may have suggested on Tuesday is to work together with other nations to raise corporate rates around the globe. That way, if the U.S. wanted to generate more revenue from a corporate rate hike, it could do some more effectively since corporations wouldn’t have a far-more-attractive option.