Yellen squashes Trump’s global retreat

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In an effort to restore global leadership and credibility with U.S. allies following the unilateralist approach of the Trump era, Treasury Secretary Janet Yellen has outlined the case for a harmonized corporate tax rate across the world’s major economies.

In her first major speech on international economic policy, Yellen marked an American return to the “global stage.”

She singled out China, saying the U.S. needs a “strong presence in global markets” to level the playing field.

The Biden administration tax proposal also marks a U.S. return to years-long talks — led by the Organization for Economic Cooperation and Development with about 140 countries — to develop a global agreement on minimum levies.

But participants haven’t yet reached a deal, and while most involved support the idea of a global minimum tax, the negotiations also include a potential accord on digital taxation that has been blocked by long-standing disagreements over how to approach the issue.

The new multilateral approach begins with the U.S. taking a leading role in working globally to find an appropriate minimum corporate tax, one of the revenue-raising proposals in President Joe Biden’s $2.25 trillion package of infrastructure and other spending released last week.

Yellen wants to halt what she described as an international “race to the bottom” by countries competing to lure corporations with lower taxes.

Biden’s plan to impose a 21% global minimum tax on foreign profits would be more robust than many of the proposals that have so far been discussed at the OECD. It’s not yet clear if the nearly 140 participants will be able to strike a deal by the self-imposed deadline this summer.

The Business Roundtable said in a statement on Monday night that while its members welcomed “a more level playing field for globally engaged U.S. companies,” the administration’s global minimum tax proposal “threatens to subject the U.S. to a major competitive disadvantage.”

Earlier in the day, three Senate Democrats, Ron Wyden of Oregon Sherrod Brown of Ohio and Mark Warner of Virginia put forth an alternative plan that included higher levies on offshore profits and stronger penalties for companies that move income outside the country to avoid paying taxes to the Internal Revenue Service.

Their proposal stops short of calling for any specific rate levels, and seeks feedback on the ideas as lawmakers work to draft legislation.

Yellen’s predecessor, Steven Mnuchin, walked away from the OECD talks because he wanted America’s system to qualify as the minimum tax.

With the change in White House control after November’s election, Yellen has been laying the groundwork for the minimum-tax proposal since shortly after taking office in late January, when she used her first bilateral talks with counterparts to discuss tax negotiations with France, Germany and the U.K.

She dropped a key demand in Trump-era negotiations over taxation of technology companies such as Alphabet Inc.’s Google and Facebook Inc., lifting a barrier that had raised transatlantic trade tensions and prevented an international deal combining minimum and digital tax issues.

Yellen in February told her counterparts at a virtual meeting of Group of 20 finance officials that the U.S. is no longer calling for a so-called safe harbor rule that would allow U.S. tech companies to opt out of paying such a tax overseas.

Yellen, in her speech, criticized the strategy of President Donald Trump’s administration, decrying four years when the U.S. “isolated ourselves and retreated from the international order that we created.”

“America first must never mean America alone,” she said. “A lack of global leadership and engagement makes our institutions and economy vulnerable.”

This week, Yellen is participating in her first round of meetings as Treasury secretary during the spring IMF and World Bank meetings, being held virtually this year.

During the week, she will meet with finance ministers to discuss climate change, finalize a boost to IMF resources to help poor nations cope with Covid-19, Biden’s “Made in America tax Plan,” and attend bilateral meetings, including with her Canadian counterpart.

In her speech, the Treasury chief also called on other major economies “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.”

She highlighted the Biden administration’s plans for sustained economic support, with a $2.25 trillion infrastructure plan following the $1.9 trillion pandemic-relief bill signed last month. She said 130 million relief payments have now been sent to individuals and families.

Four years ago, Trump’s newly sworn-in Treasury secretary, Mnuchin, shocked American allies during the administration’s first international meeting with an approach so unilateral that it extended to outright disengagement.

Mnuchin barely spoke a word during closed-door sessions in his first meetings with Group of 20 finance ministers in March 2017, held in Germany. He spoke up during a plenary session just once — to urge the group to set aside any vows to avoid protectionism.

Yellen’s speech demonstrates a major about-face. “Credibility abroad begins with credibility at home,” she said Monday.

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