Yellen proposes wide-ranging corporate tax changes to pay for infrastructure

[WASHINGTON] US Treasury Secretary Janet Yellen on Wednesday fleshed out the details of a corporate tax hike plan linked to President Joe Biden's infrastructure investment proposal, aiming to raise US$2.5 trillion in new revenues over 15 years by deterring tax avoidance.

Ms Yellen's plan relies on negotiating a 21 per cent global minimum corporate tax rate with major economies and a separate 15 per cent minimum tax on 'booked' income aimed at the largest US corporations. Dozens of big US companies have used complex tax strategies to reduce their federal tax liabilities to zero.

Ms Yellen said that promised boosts in US capital investment by corporations and turbocharged growth failed to materialise after Republican tax legislation in 2017 cut the corporate rate to 21 per cent from 35 per cent.

Instead, the Trump-era cuts halved US corporate tax collections as a share of economic output to 1 per cent from its long-term 2 per cent average, according to data from the Organization for Economic Cooperation and Development.

The average for the 37 OECD member countries is 3.1 per cent. "Our tax revenues are already at their lowest level in a generation. And as they continue to drop lower we will have less money to invest in roads, bridges, broadband and R&D," Ms Yellen said.

The bulk of US tax collections are deducted from the regular paychecks of individual wage earners, but Mr Biden has pledged not to raise any taxes on Americans earning less than US$400,000 a year.

The Treasury plan seeks to end provisions in the 2017 tax cuts that Democrats say provide continued incentives for companies to shift investments, intellectual property and profits to lower-tax countries.

Its biggest target is revamping the 2017 tax act's first stab at a minimum tax, the 10.5 per cent Global Intangible Low-Taxed Income tax (GILTI). Treasury would eliminate a US deduction for the first 10 per cent of income from foreign assets and raise the GILTI minimum rate to 21 per cent.

GILTI, which acts as a kind of "top-up" tax to offset lower rates in other countries, would be applied on a country-by-country basis, rather than a global average rate, which Democrats say encourages some use of tax havens. This change alone could raise US$500 billion in revenue over a decade, Treasury said.

Treasury would also replace a separate 10 per cent Base Erosion and Anti-abuse Tax (BEAT), aimed at preventing shifting profits to entities in tax havens, with a new 21 per cent tax that aims to deny deductions on income from countries that do not agree to a global minimum tax. It is rebranding this as the SHIELD tax, for "Stopping Harmful Inversions and Ending Low-Tax Developments."

A Treasury official told reporters that this new tax would act as an incentive for countries to agree to a global minimum tax by denying companies the benefits of using tax havens.

FOSSIL FUEL BREAKS

The Treasury plan also would eliminate a range of tax breaks for the fossil fuel industry, a move it said would raise revenues by US$35 billion over 10 years. It will replace these with new clean energy tax incentives including for electric vehicles and efficient electric appliances.

Treasury also is proposing a new 15 per cent alternative minimum tax for large corporations, based on booked income reported to shareholders, to ensure that they cannot use complex tax avoidance schemes to pay no taxes.

Treasury said it estimates that some 45 corporations would have seen an average US$300 million additional annual tax liability under the proposed minimum, raising some US$13.5 billion in new revenues.

REUTERS