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Janet Yellen (Getty Images)
With the way the news cycle works these days, you can be forgiven if you don’t remember what happened last week, let alone last year. But now might be a good time to remember that the U.S. is trying to gin up support for a global corporate tax of 15 percent that would be a total game-changer.
To briefly recap, in October of 2021 the leaders of 136 countries, including the United States, came to an agreement to set a minimum corporate tax rate of 15 percent and to require multinational companies to pay their taxes where they actually generate sales and profits. This would prevent the “race to the bottom” in corporate tax policy that has seen some nations jockeying to attract businesses with rock-bottom levies.
For decades, this international competition to charge corporations the least has incentivized businesses to repeatedly shift their centers of operation (on paper, at least).
Of course, there’s always a catch. Just because a country’s leader agrees to something doesn’t mean it will necessarily be implemented internally. All of the leaders who agreed in principle to the global minimum corporate tax have to get legislation passed domestically to move the deal forward. In some places, that’s a tall order.
Which is why U.S. Treasury Secretary Janet Yellen is making the rounds abroad. Since the deal was reached last fall, the European Union has delayed its timeframe for implementing the 15 percent minimum corporate tax rate by a year, and renewed objections by some member states threaten to further impede progress.
Poland has been a particularly challenging holdout. In meetings in Warsaw on May 16, Yellen pressured Polish officials, including the prime minister and the finance minister, to move the deal forward.
Poland’s reservations include concerns about whether the deal will actually work to prevent large companies from forum-shopping for tax benefits and whether now is the right time economically to be raising the corporate tax rate in Poland given that the country is currently taking in large numbers of Ukrainian refugees. While acknowledging that there are still wrinkles which need to be smoothed out with Poland, Yellen told The New York Times, “We strongly believe it’s in the interest of Poland to be part of this.”
Yellen’s trip also includes stops in Belgium and Germany, where she will additionally address the coordination of sanctions against Russia and disruptions to energy and food supply chains.
Meanwhile, there are few assurances that the global minimum corporate tax rate has the support it needs at home. Senate Republicans were against the deal from the start, and the top Republican on the House Ways and Means Committee just made it clear once again that the global minimum corporate tax rate, along with any other deal brokered by the Biden administration, will not get Republican support.
Yellen has indicated previously that she believes the U.S. can pass the global corporate tax rate through the budget reconciliation process, meaning it would only need to secure the votes of all 50 Democratic senators. Yet, it is not at all clear that all 50 Democrats in the Senate can stick together on this (or much else, for that matter). Furthermore, with midterms coming in November and a Congress full of septuagenarians and octogenarians, the slight Democratic majority, with Vice President Kamala Harris breaking any ties in the Senate, could hardly be in a more precarious position.
The current tax rate for U.S. resident corporations is 21 percent. Thus, a 15 percent minimum corporate tax rate would not increase taxes on businesses located here. But it just might encourage a few more corporations to keep their operations at home rather than continually moving them around to find lower and lower tax rates abroad.
There’s a lot to like in this global tax deal for the United States. It sure does seem like Yellen, the Biden administration, and pretty much the whole world all have a tough row to hoe in actually getting the thing in place though. Good to see them out there hustling for it nonetheless.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.
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