Yellen: 'Global race to the bottom' in corporate tax

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US Treasury Secretary Janet Yellen attends an economic briefingImage source, Reuters

Treasury Secretary Janet Yellen has said the US wants to stop a "global race" to lower taxes on corporations.

Her comments come as White House prepares to unveil plans to raise taxes on businesses and the wealthy.

The moves are expected to be included in a massive spending package on infrastructure and green jobs.

Ms Yellen said she was working with international groups to update global rules so that the rises wouldn't make the US less attractive to firms.

She was speaking at a hearing of the House Financial Services Committee to discuss the country's recovery from the coronavirus-triggered recession, but turned into a skirmish over priorities far beyond it.

Ms Yellen said her staff were working with the Organisation for Economic Co-operation and Development (OECD) to coordinate the potential tax changes with other countries.

She has said they are considering a voluntary global minimum rate, among other measures. The OECD is also pushing for a global agreement over how to tax tech giants.

"We've had a global race to the bottom in corporate taxation and we hope to put an end to that," she said at a hearing in Washington on Tuesday.

What tax increases is the US planning?

As a candidate for president, Joe Biden pledged to increase the tax rate on corporations from 21% to 28%.

He is expected to include the proposal when he unveils a multi-trillion dollar package to invest in infrastructure and so-called "green jobs" in coming weeks.

Raising rates on the wealthy and overhauling other rules to capture more revenue from multinational firms are also expected to help pay for the plan.

The moves - which analysts say would amount to the most ambitious tax hikes in nearly 30 years - would partially reverse cuts enacted under former US President Donald Trump, which slashed the federal tax rate on corporations from 35% to 21%.

At Tuesday's hearing, Ms Yellen defended the Biden proposals when questioned by Republicans, saying they would be "fair" and help pay for investments to ensure the US economy is "competitive and productive".

Globally, the average tax rate for corporations is about 24%, down from more than 40% in 1980, according to the Tax Foundation. Just last year, nine countries moved to cut their rates, including France, Colombia and Belgium.

But the US is not alone in its bid to raise taxes.

Earlier this month, UK Chancellor Rishi Sunak unveiled a plan to raise taxes on corporations from 19% to 25% in 2023 - the first increase since the 1970s, citing the need to pay for support offered to businesses during the pandemic.