Noting that corporate tax collections have fallen to their lowest level since World War II, Treasury Secretary Janet Yellen said Wednesday that Republican tax cuts and the 2017 jobs law do not attract new production or investment to the U.S. . Instead, it provided incentives for companies to send workers and profits abroad.
Other countries have also lowered their corporate rates in response to the decline in the United States, she said in a conference call with reporters.
Overall, as a result of tax cuts in previous years, the US now raises only about 16% of GDP from federal tax revenues, a drop of about four percentage points over the past two decades.
However, Commerce Secretary Gina Raimondo said on Wednesday that the president was willing to compromise on the proposed increase in the corporate tax rate to 28 percent, but urged Congress to “go to sea.”
Biden accused the cabinet of “working in the aisle and in a bipartisan way” to pay for the plan, she said. While the administration proposes to invest in eight years and repay it in 15 years, Raimondo said officials are willing to discuss repaying it in 20 years and raise the rate to less than 28%.
“What I’m begging the business community not to do is say, ‘We don’t like 28%. We move away, we don’t talk. ” It’s unacceptable, “she said.” Come to the table and solve problems with us to come up with a reasonable and responsible plan. ”
Raimondo called for a “discussion” with congressional leaders and accused opponents to “tell us what you think is a reasonably alternative plan,” as long as it doesn’t “change America.”
The report sets out Biden’s case
The White House set out its argument in a 19-page report released Wednesday. He focused on four major messages: that his tax package would increase the necessary revenues, prevent companies from transferring profits and operations abroad, make the system fairer for workers and move to a cleaner energy sector.
Republicans’ 2017 tax cuts, which reduced the corporate tax rate from 21 percent to 35 percent, meant the share of tax revenue collected as a share of the economy fell to 1 percent, the White House said. Historically, corporate taxes have risen by about 2% of GDP.
In addition, the report points out that the US has typically earned lower income through income taxes compared to other advanced countries. In the last two decades, the typical country of the Organization for Economic Co-operation and Development has collected about 3% of GDP from the profit tax.
Like its predecessors, the Biden administration is also trying to stem the tide of US companies moving profits to tax havens abroad through a variety of measures, including a global minimum tax. He is trying to put an end to the provisions of the 2017 tax act, which he described as “poorly designed”. These proposals would bring in profits of more than $ 2 trillion over the next decade based on US corporate tax, says the White House.
The administration also argues that it can create a fairer tax system by raising corporate taxes and addressing growing income inequality.
The report indicates that the share of high federal income tax revenue has steadily fallen since 1950 and is now below 10%. Meanwhile, the share of high federal income from individuals now exceeds 80%.
The president’s plan would also eliminate some subsidies for fossil fuel producers and extend tax incentives for clean energy production.
By eliminating subsidies, tax revenues would increase by $ 35 billion over 10 years, according to estimates by the Treasury Department’s Tax Analysis Bureau. The administration says the incentives would address climate change by reducing air pollution.
What’s in the plan
Profit tax increase: Biden would raise the corporate tax rate to 28% from 21%. The rate had been up to 35% before former President Donald Trump and Republicans in Congress cut taxes in 2017.
Global minimum tax: The proposal would increase the minimum tax on US corporations to 21% and calculate it on a country-by-country basis to discourage companies from sheltering profits in international tax havens.
Accounting income tax: The President will charge a minimum tax of 15% on the income that the largest corporations report to investors, known as accounting income, as opposed to the income reported to the Internal Revenue Service. The administration said that in recent years, about 45 corporations have paid a minimum accounting tax liability under the proposal, with an average company noticing an increased minimum liability of about $ 300 million each year.
Corporate investments: Biden would make it harder for American companies to acquire or merge with a foreign business to avoid paying US taxes by claiming to be a foreign company. And it wants to encourage other countries to adopt strong minimum corporate taxes, including by refusing certain deductions to foreign companies based in countries without such a tax.
Clean energy incentives: The plan aims to advance the production of clean electricity by providing a 10-year extension of tax credits for the generation and storage of clean energy and by granting these direct payments. It would also create and expand other incentives. The administration will eliminate subsidies to the oil and gas industry, which would increase government tax revenues by more than $ 35 billion over the next decade, according to estimates by the Treasury Department’s Tax Analysis Bureau.
Execution: The president also wants to provide more IRS funding to better track companies that fail to meet their tax obligations. The share of large corporations facing audits has been halved in the last decade, the White House said.
Supporters and opponents
Infrastructure and tax proposals quickly attracted criticism and praise.
The US Chamber of Commerce has strongly criticized Biden’s proposal to disappoint Trump’s corporate tax cuts.
“We believe the proposal is dangerously wrong when it comes to how to pay for infrastructure,” Neil Bradley, the House’s political director, said in a statement last week, echoing comments made earlier by CNN Business.
US companies are already facing a minimum global income tax, and no other country has followed the US leadership in adopting such a tax, said Joshua Bolten, CEO of Business Roundtable, whose members are executives of major US companies.
“The overall minimum quota proposed by the administration, however, threatens to subject the United States to a major competitive disadvantage,” he said.
The massive plan has also raised concerns in Congress. Already, West Virginia Senator Joe Manchin, a key Democratic voter, has said he will not agree to raise the corporate income tax by more than 25 percent.
Meanwhile, administration officials went on the road to get additional support.
“We are working with the G20 nations to agree on a global minimum corporate tax rate that can stop the race down,” Yellen said in a speech to the Chicago Council on Global Affairs. “Together, we can use the global minimum tax to ensure that the global economy thrives on more equitable taxing conditions for multinational corporations and to stimulate innovation, growth and prosperity.”
This story has been updated with comments and additional details.
Devan Cole, Jasmine Wright and Matt Egan contributed to this report.