In a speech on Monday, Treasury Secretary Janet L. Yellen called for a global minimum tax on multinational corporations as President Joe Biden and leading Democrats defended a sweeping jobs and infrastructure proposal that analysts say would support a more equitable recovery from the pandemic by raising the corporate tax rate.
Yellen argued that international coordination on a global tax rate would pull the brakes on a “race to the bottom,” in which countries attempt to lure multinational corporations with lower tax rates. Yellen said the U.S. is currently working with the G20 nations to “agree on a global minimum tax rate,” which would reduce incentives for companies to move money and operations abroad if Democrats succeed in raising the corporate tax rate at home.
“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,” Yellen said in a speech before the Chicago Council on Global Affairs.
Separately, a trio of top Democratic lawmakers — Senators Ron Wyden, Sherrod Brown and Mark Warner released on Monday a plan for overhauling the international provisions in the tax cut passed by Republicans in 2017, which they call a “complex mess” that created incentives to shift jobs and investments overseas. The plan could compliment the Biden administration’s recent proposal to hike taxes on multinational corporations in order to pay for the infrastructure plan.
Meanwhile, Biden squared off with Republicans over the definition of “infrastructure” as Democrats seek to raise the corporate tax rate from 21 percent to 28 percent to pay for Biden’s American Jobs Plan, which would make a $2.3 trillion federal investment in the U.S.’s crumbling infrastructure, such as public transit and drinking water systems. The White House says the spending would create 19 million jobs.
The Democrats’ proposal of a 28 percent corporate tax rate would be a modest step toward reversing Trump-era damage to the tax code. The corporate tax rate in the U.S. stood at 35 percent before President Trump and Republican lawmakers drastically cut taxes on corporations and the wealthy in 2017.
Republicans have tried to paint the proposal as a liberal wish list, claiming that only 5 to 7 percent of the $2.3 trillion would go to infrastructure such as roads, bridges and ports. However, fact-checkers say the GOP’s math is highly misleading. Biden pushed back on Monday, arguing that other nations are making massive infrastructure investments and the U.S. must keep up in order to compete.
“When you’re in a situation where you can’t turn on a water fountain in school because the water affects your health, that’s infrastructure,” Biden told reporters on Monday. “I’m talking about making sure we take asbestos out of schools; that’s infrastructure. I’m talking about building high speed rail; that’s infrastructure.”
U.S. infrastructure is in desperate need of investment, and the U.S. must spend a total of $4.59 trillion by 2025 to fix the nation’s roads, bridges, dams, wastewater systems and other infrastructure, according to the American Society of Civil Engineers. Based on current projected federal spending, the U.S. will face a $2.6 trillion infrastructure investment gap over the next decade as the COVID-19 pandemic threatens to derail modest progress in improving infrastructure and the climate crisis threatens communities with extreme weather and natural disasters.
Biden’s American Jobs Plan would invest $1.3 trillion in transportation infrastructure such as highways and bridges along with community infrastructure such as affordable housing and the broadband internet and electric grids. For example, $111 billion would fund infrastructure for clean drinking water and $137 billion would go to schools and hospitals for veterans. About $580 billion would fund manufacturing, technological research and workforce development. Notably, the plan includes $400 billion to expand at-home care for elderly.
Meanwhile, the plan would reverse about half of the corporate tax cuts passed by the GOP in 2017, which would make the tax code “more progressive” and ensure a more equitable recovery from the COVID-19 pandemic, according to the Center for Budget and Policy Priorities, a nonprofit research and policy institute. The organization argues that corporations benefit greatly from public infrastructure such as roads and utilities, as well as any number of public investments, so asking big companies to pay more in taxes is one way to “build toward a more equitable nation.”
Of course, the corporate tax hike is a major sticking point for Republicans, who are lining up against the package in Congress. With Senate seats split 50-50 between Democrats and Republicans, Biden cannot afford to lose a single Democratic vote if he wants to pass the American Jobs Plan.
However, Biden and leading Democrats are betting that a majority of voters will support a tax hike on corporations as well as efforts to increase revenues by closing tax loopholes. Last year, 55 of the largest corporations in the U.S. paid zero federal income taxes despite posting considerable profits, according to the Institute on Taxation and Economic Policy.
“You’re talking about companies in the Fortune 500 that haven’t paid a single penny in tax for 3 years,” Biden said. “Come on, man.”
From his powerful perch as chairman of the Senate Budget Committee, Sen. Bernie Sanders has been holding hearings on rampant economic inequality. Sanders and his colleagues are exploring ways to close loopholes in the “corrupt and rigged tax code” and raise taxes on corporations that pay their CEOs hundreds of times more money than their average employees.
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Yes. We must end our rigged tax code.
— Bernie Sanders (@BernieSanders) April 4, 2021
Democrats know that wealthy corporations must pay more in order to make their agenda on infrastructure and a host of other issues a reality. Yellen’s proposal for working with other countries to set an international tax floor for multinational companies is controversial and will require plenty of diplomacy, but it indicates that Democrats are serious about raising the corporate tax rate and are willing to pursue a variety of approaches. We’ll see what sticks.