Janet Yellen, the US Treasury secretary, has called on other countries to join Washington in setting a global minimum tax for companies as she vowed to reassert America's leadership in international economic policy.
"Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth and prosperity," Yellen said in a speech to the Chicago Council on Global Affairs on Monday.
Yellen's appeal on the eve of the spring meetings of the IMF and the World Bank comes as the Biden administration puts a crackdown on tax avoidance and tax shelters at the heart of its economic agenda.
The White House last week released a plan to invest more than US$2 trillion ($2.8t) to revamp decaying infrastructure and boost clean energy products. It hopes to pay for the proposal with a higher corporate tax rate, an increase in its own global minimum tax and other measures designed to stop profit-shifting across borders for tax reasons.
"Competitiveness is about more than how US-headquartered companies fare against other companies in global merger and acquisition bids," Yellen said. "It is 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."
The US is already pushing for a multilateral agreement on digital taxation at the OECD by the summer, but Yellen's pitch is for an even broader deal on corporate taxation encompassing the G20 and other countries.
As Yellen pushes for a global deal on corporate taxation, however, the Biden administration is facing a big fight over its proposals for higher US corporate taxes, including a new provision to boost the global minimum corporate tax from 10.5 per cent to 21 per cent. Republicans on Capitol Hill and business groups have said such tax increases would hurt the competitiveness of US multinationals.
Pat Toomey, the Republican senator from Pennsylvania, said: "Secretary Yellen essentially confessed that the Biden corporate tax increases will make American workers and businesses less competitive. This is why Secretary Yellen is imploring other developed countries to punish their workers and businesses with their own tax increases."
Joe Manchin, the centrist Democratic senator from West Virginia who is a pivotal vote in the upper chamber, also suggested Biden's corporate tax plan was too aggressive, saying he would only raise the US rate from 21 per cent to 25 per cent and that other changes were needed. The Biden plan is for an increase to 28 per cent.
"If I don't vote to get on it, it's not going anywhere. So we're going to have some leverage here," Manchin told a local radio station.
In her speech, Yellen stressed that the US was interested in restoring its economic leadership in the world in the wake of the unilateralism of Donald Trump's presidency and in the face of global challenges including the fight against the coronavirus pandemic and climate change.
"America first must never mean America alone. For in today's world, no country alone can suitably provide a strong and sustainable economy for its people. Over time, a lack of global leadership and engagement makes our institutions and economy vulnerable," she said.
"The United States needs to have a strong presence in global markets on a level playing field. We will to co-operate with willing partners to protect and enforce a rules-based order."
However, the former Federal Reserve chair warned that US economic ties with China were more complex. "Our economic relationship with China, like our broader relationship with China, will be competitive where it should be, collaborative where it can be, and adversarial where it must be."
Yellen, who also served as chair of the White House council of economic advisers under Bill Clinton, expressed some regret about how US economic policy had been conducted in the past.
"In the push to grow our economies, we neglected our environment. As we embraced new technologies, we didn't do enough to prepare our workers and our education systems for the changes under way. While we embraced trade as an engine for growth, we neglected those who did not benefit," she said.
Despite projections by the Fed that US gross domestic product growth could hit 6.5 per cent this year, making for a strong rebound from the pandemic, Yellen said it was "too early for advanced economies to declare victory" in the coronavirus crisis.
"I am urging our partners to continue a strong fiscal effort and avoid withdrawing support too early, to promote a strong recovery and help avoid the emergence of global imbalances," Yellen said.
She also said the slow pace of vaccinations in many developing countries would result in "a deeper and longer-lasting crisis, with mounting problems of indebtedness, more entrenched poverty and growing inequality".
Yellen dismissed concerns that the stimulus would trigger an unhealthy jump in inflation, saying the risks to the recovery were "asymmetric" and there was more danger in doing too little.
"I do believe we have the fiscal space to act boldly. I think it's important in mitigating the suffering of the pandemic, and the long-term adverse consequences to our US potential output."
Written by: James Politi
© Financial Times