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Janet Yellen Wants to Raise Corporate Tax Rates--on the World

We knew President Joe Biden wanted to raise U.S. corporate tax rates. We didn’t know he wanted to raise them across the world. But Treasury Secretary Janet Yellen has now revealed that goal—a “minimum global corporate tax rate.”
It’s a bizarre move, to say the least. Usually it’s the high-tax government entities that want to harmonize high tax rates to discourage individuals and companies from fleeing to lower-tax regions.
But the United State isn’t a high corporate tax rate country anymore, as it was before President Trump’s  2017 tax reform legislation. The U.S. corporate tax rate is about average for developed countries.
For example, the Tax Foundation tells us, “On average, European OECD countries currently levy a corporate income tax rate of 21.9 percent. This is below the worldwide average which, measured across 176 jurisdictions, was 24.2 percent in 2019.”
The U. S. federal corporate tax rate is now 21 percent. Only slightly lower than the OECD average.
Of course, many U.S. states also impose a corporate tax, which means corporations in those states face a combined tax rate of perhaps 24 percent—which just happens to be the world average.
So if Yellen wants to harmonize taxes among the developed economies, mission accomplished—thanks to the Trump tax reform.
But in fact, Biden wants to raise the current rate to 28 percent, which would be 6 percentage points higher than the OECD average. If Biden succeeds, Yellen would have to press many EU member countries to RAISE their corporate tax rate also, which, frankly, higher-tax EU countries would love.
That’s because tax competition has been going on between EU countries for decades. For example, Ireland’s low corporate tax rate enticed several major companies to relocate their headquarters there. That’s what Yellen calls a “30-year race to the bottom.”
IPI thinks tax competition among government entities is a good thing, just as price competition among companies and workers is a good thing.
But the Biden administration is on a price-fixing quest. Corporate tax rates are essentially a price a company pays to do business in a country (or a state).
The Biden administration wants to fix prices—either a minimum or maximum—on almost every aspect of the economy. For example, it wants to set a price floor on labor—i.e., a $15 minimum wage. But it also wants to set a price ceiling on prescription drugs—perhaps some international average.
Now that Biden wants to significantly increase the U.S. corporate tax rate, he also wants to set a global corporate tax minimum to ensure corporations don’t try to escape to lower-tax countries—which is precisely why most low-tax countries aren’t likely to go along.