Noting that corporate tax collections have fallen to their lowest level since World War II, Treasury Secretary Janet Yellen said Wednesday that Republicans’ 2017 Tax Cut and Jobs Act did not lure new production or investment to the US. Instead, it gave companies incentives to send workers and profits abroad.
Also, other countries lowered their corporate rates in response to undercut the US, she said in a conference call with reporters.
Overall, as a result of the tax cuts of prior years, the US now raises only about 16% percent of GDP in federal tax revenue, a decline of about four percentage points in the last two decades.
However, Commerce Secretary Gina Raimondo signaled Wednesday that the President is willing to compromise on the proposed increase in the corporate tax rate to 28% but still called on Congress to “go big.”
Biden had charged the Cabinet to “work across the aisle, and in a bipartisan way” to pay for the plan, she said. While the administration is proposing to invest over eight years and pay it back over 15 years, Raimondo said officials are open to discussing paying it back over 20 years instead and raising the rate to a figure less than 28%.
“What I am imploring the business community not to do, is to say, ‘We don’t like 28%. We’re walking away we’re not discussing.’ That’s unacceptable,” she said. “Come to the table, and problem solve with us to come up with a reasonable, responsible plan.”
Raimondo called for a “discussion” with congressional leaders and charged opponents to “tell us what you think is an alternative reasonable plan,” as long as it doesn’t “shortchange America.”
Report lays out Biden’s case
The White House also laid out its argument in a 19-page report released Wednesday. It focused on four major messages: that its tax package would raise needed revenue, stem companies from shifting profits and operations overseas, make the system fairer for workers and move toward a cleaner energy sector.
The Republicans’ 2017 tax cuts, which slashed the corporate tax rate to 21% from 35%, meant that the share of tax revenues collected as a share of the economy fell to 1%, the White House said. Historically, corporate taxes have raised about 2% of GDP.
Plus, the report points out that US has typically raised less revenue through corporate taxes relative to other advanced nations. For the past two decades, the typical country in the Organisation for Economic Co-operation and Development has raised about 3% of GDP from corporate taxation.
Like its predecessors, the Biden administration is also trying to stem the tide of US companies moving profits to tax havens overseas through a variety of measures, including a global minimum tax. It is seeking to end provisions of the 2017 tax act, that it described as “poorly designed.” These proposals would bring well over $2 trillion in profits over the next decade back into the US corporate tax base, the White House says.
The administration also argues that it can create a more fair tax system by raising taxes on corporations, and address rising income inequality.
The report points to the fact that the share of federal revenue raised by the corporate tax has fallen steadily since 1950 and now sits at below 10%. Meanwhile, the share of federal revenue raised by individuals now exceeds 80%.
The President’s plan would also eliminate some subsidies for fossil fuel producers and expand tax incentives for clean energy production.
By eliminating the subsidies, tax revenue would increase by $35 billion over 10 years, according to estimates from the Treasury Department’s Office of Tax Analysis. The administration argues that the incentives would address climate change by reducing air pollution.
What’s in the plan
Corporate tax hike: Biden would raise the corporate income tax rate to 28%, up from 21%. The rate had been as high as 35% before former President Donald Trump and congressional Republicans 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 deter companies from sheltering profits in international tax havens.
Tax on book income: The President would levy a 15% minimum tax on the income the largest corporations report to investors, known as book income, as opposed to the income reported to the Internal Revenue Service. The administration said that in recent years, about 45 corporations would have paid a minimum book tax liability under the proposal, with the average company seeing an increased minimum liability of about $300 million each year.
Corporate inversions: Biden would make it harder for US companies to acquire or merge with a foreign business to avoid paying US taxes by claiming to be a foreign company. And he wants to encourage other countries to adopt strong minimum taxes on corporations, including by denying certain deductions to foreign companies based in countries without such a tax.
Clean energy incentives: The plan seeks to advance clean electricity production by providing a 10-year extension of the tax credits for clean energy generation and storage, and making those credits direct pay. It would also create and expand other incentives. The administration would remove subsidies for the oil and gas industry, which would increase government tax receipts by more than $35 billion in the coming decade, according to estimates from the Treasury Department’s Office of Tax Analysis.
Enforcement: The President also wants to provide more funding to the IRS to better pursue companies that don’t meet their tax obligations. The share of large corporations facing audits has been cut in half over the last decade, the White House said.
Supporters and opponents
The infrastructure and tax proposals quickly attracted criticism and praise.
The US Chamber of Commerce strongly criticized Biden’s proposal to unwinding the Trump corporate tax cuts.
“We believe the proposal is dangerously misguided when it comes to how to pay for infrastructure,” Neil Bradley, the Chamber’s chief policy officer, said in a statement last week that echoed comments he previously made to CNN Business.
American companies already face a global minimum tax on their income and no other country has followed the US lead in enacting such a tax, said Joshua Bolten, CEO of the Business Roundtable, whose members are chief executive officers of major American companies.
“The administration’s proposed global minimum corporate tax rate, however, threatens to subject the US to a major competitive disadvantage,” he said.
The massive plan has also raised concerns in Congress. Already, West Virginia Sen. Joe Manchin, a key Democratic vote, has said he would not agree to raising the corporate tax above 25%.
Administration officials, meanwhile, have taken to the road to raise additional support.
“We’re working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom,” Yellen said in a speech to the Chicago Council on Global Affairs. “Together, we can use global minimum tax to make sure that the global economy thrives, based on a more level playing field in the taxation of multinational corporations and spurs innovation, growth and prosperity.”
This story has been updated with additional comments and details.
CNN’s Devan Cole, Jasmine Wright and Matt Egan contributed to this report.