As published on irishtimes.com, Tuesday 6 April, 2021.
On Monday US Treasury secretary Janet Yellen called on other countries to join in setting a global minimum tax for corporations as she vowed to reassert America’s leadership in international economic policy.
Donald Trump’s policy during his four years in the White House had been to cut corporate taxes.
President Joe Biden’s administration has signalled its intention to follow a different path. The new US administration puts a crackdown on tax avoidance and tax shelters at the heart of its economic agenda.
Delivered at a speech in Chicago, Yellen’s call was nothing particularly new – she has suggested this before. But it was delivered on the eve of the spring meetings of the IMF and the World Bank, and maintains the narrative around corporate tax change at a time with the OECD has been working on finding a compromise to this contentious issue.
Biden plans to increase the US corporate tax rate to 28 per cent (a rise of seven percentage points) to help pay for a massive $2 trillion splurge on infrastructure. He is not the only one proposing a tax hike for businesses. The UK plans to increase its corporate tax rate to 25 per cent from 19 per cent by 2023.
Among Biden’s reforms is a planned doubling to 21 per cent in the rate of tax applied to profits earned abroad by American companies. This would have the effect of undermining the Republic’s long-cherished 12.5 per cent corporate tax rate, which has been such a major draw for US multinationals over the years.
Biden’s plan still has to navigate its way through the choppy waters of Congress, and there are plenty of opponents who could yet scupper it or force it to be watered down. But change is coming, and that could be bad news for Ireland in the long term.