Janet Yellen has called on corporate America to embrace “mutually beneficial” tax increases to pay for infrastructure spending, saying President Joe Biden’s $2tn plan would deliver a 1.6 per cent boost to gross domestic product by 2024.
The US Treasury secretary made the remarks on Wednesday as the Biden administration tries to quell a backlash from businesses to its latest economic package, which seeks to plough more than $2tn in government investment into the economy alongside roughly $2.5tn in corporate tax increases.
“America’s corporate tax system has long been broken, so too has been the way we think about corporate taxation: tax reform is not a zero-sum game, with corporations on one side and government on the other,” Yellen told reporters. “There are policies that are mutually beneficial. Win-win is a very overused phrase, but we have a real one in front of us now.”
The US Treasury secretary and former Fed chair stressed that the revenue generated from the corporate tax increases would be “turned into funding to both traditional infrastructure, and the more modern kind needed to run a digital economy, like high-speed broadband networks”. Within four years, the plan would boost US economic output by 1.6 per cent, she said.
Yellen’s remarks came ahead of a speech by Biden later on Wednesday in which the US president is expected to tout the plan’s benefits as the White House tries to gather momentum ahead of a tough set of congressional negotiations in the coming weeks.
Republicans and many business groups who are traditionally sympathetic to infrastructure spending are balking at the corporate tax increases, saying they will stymie the recovery and make American multinationals less competitive. But senior Biden administration officials reiterated that they were flexible on the details.
“There is room for compromise. That is clear,” Gina Raimondo, the commerce secretary and former governor of Rhode Island, told reporters at the White House.
“Our proposal is to invest in eight years and pay back over 15,” she said. “Now, we can have a discussion about that. Should we pay it back over 20 instead of 15? Is the rate not quite 28? Is it something lower?
“What we cannot do, and what I am imploring the business community not to do, is to say we don’t like 28, we are walking away, we are not discussing it,” she added. “That is unacceptable. Come to the table and problem-solve with us to come up with a reasonable, responsible plan.”
Asked about Raimondo’s comments, White House press secretary Jen Psaki said: “Debate is inevitable. Compromise is inevitable. Changes are certain, and our main bottom line is inaction is not an option.”
In a detailed report, the US Treasury said the proposal would raise US corporation tax to 28 per cent, and put in place a minimum tax of 15 per cent on book income on top of any company’s regular tax liability.
Book income, which is the profit reported to investors, is often higher than the taxable income reported to the US tax authorities. The minimum tax would apply to about 45 companies earning more than $2bn in net profits, increasing their tax liability by about $300m, the Treasury said.
The Biden administration also wants to double the rate at which overseas earnings are taxed from 10.5 per cent to 21 per cent, and eliminate US tax deductions claimed by companies making payments to “related parties” in low-tax jurisdictions.
Officials added that they would strengthen “anti-inversion” rules that allow companies to change their tax domicile through M&A activity, and replace a Trump-era tax break for exporters with new tax incentives aimed at boosting domestic research and development.