The Biden administration thinks they may have found a way to promote higher corporate taxes to American voters. President Joe Biden and Treasury Secretary Janet Yellen claim this is all about ending “the global race to the bottom.”
It is obvious that the president wants to raise our corporate taxes, but who knew that he also wants to raise them across the world? He and the Treasury secretary want to establish a “minimum global corporate tax rate.”
A little history is in order. The 2017 Tax Cuts and Jobs Act reformed America’s corporate tax code after many other nations had already taken steps to reform their tax code. If you look at the various European countries in the OECD (Organization for Economic Cooperation and Development), most of them have a corporate tax rate similar to America’s 21 percent corporate tax rate.
President Biden wants to raise the current rate to 28 percent. That might encourage some companies to move their headquarters or their operations to other countries. In the past, there were many news stories about corporate inversion (where a company reincorporates abroad to reduce it’s tax burden). There haven’t been too many news stories like that in recent years because of the 2017 corporate tax cut.
If President Biden is successful in raising the US corporate tax rate, he would hope that Secretary Yellen could also convince other countries to raise their rates so America wouldn’t lose US companies.
This attempt to establish a global minimum corporate tax rate is being portrayed as a “global race to the bottom.” Actually, it is a classic example of tax competition. Some countries are willing to have a lower tax rate to encourage business development. That is good for those countries and good for those companies. It’s not a race to the bottom.