Treasury Secretary Janet Yellen on Tuesday told America’s business leaders they need to pay more in corporate taxes to fund President Joe Biden’s $2.3 trillion infrastructure plan.
Yellen told the U.S. Chamber of Commerce’s Global Forum on Economic Recovery that the country’s corporate income tax needs to be raised to 28% from its current rate of 21%, where it has been since former President Donald Trump’s 2017 tax cuts.
“We believe the corporate sector can contribute to this effort by bearing its fair share,” Yellen said, adding that corporate taxes are at a “historical low” of 1% of gross domestic product.
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“We are confident that the investments and tax proposals in the jobs plan, taken as a package, will enhance the net profitability of our corporations and improve their global competitiveness,” Yellen said.
The chamber and other business groups have said they oppose a rise in the corporate rate, preferring that user fees help fund infrastructure investments.
Choosing to measure corporate taxes as a share of GDP is often criticized by economists as misleading because more businesses in the U.S. now use corporate structures that allow them to file individual income taxes. Also, large multinational companies use legal allowances and their manufacturing and research and development operations to pay taxes to other countries that may have lower rates than the U.S.
Partly to account for that, Yellen called for a global minimum corporate tax to end what she and Biden have called “a race to the bottom.”
Nonetheless, the chamber and others in the business community have warned that increasing the corporate tax rate will diminish the competitiveness of American firms versus their international competitors.
Yellen also took the occasion to speak about economic inequality, which has been exacerbated by the coronavirus. Biden is pushing another multitrillion-dollar proposal to fund new programs dealing with child care, health care and economic inequities. That would be paid for by raising individual income taxes on high earners.
Resistance to some of Biden’s programs has been building amid a soft April jobs report and another measure that showed inflation rising at a rate not seen since 2008. Meanwhile, Republican governors and their allies in Congress are working to halt enhanced unemployment benefits that were part of the $1.9 trillion American Rescue Plan that Biden pushed through Congress in March.
The GOP has indicated support for an infrastructure plan but one that would be significantly smaller than what Yellen and Biden favor. Repulblican Sen. Shelley Moore Capito of West Virginia has floated a $568 billion “Republican Roadmap” infrastructure plan while Senate Minority Leader Mitch McConnell has mentioned a figure of $800 billion though he has said the GOP has no interest in revisiting the 2017 tax cuts.
Yellen’s speech continued the Democrats’ stark departure from the economic orthodoxy of the last 40 years dating back to Ronald Reagan, which holds that lower taxes lead to greater economic prosperity for all.
“This is a potentially historic speech that will serve as a reference point to understand and mark a turning point in economic policy, Adam Posen, president of the Peterson Institute for International Economics. “Secretary Yellen’s emphasis that for too long we have crowded out useful big discretionary spending, that portfolios of public investment are high-return even as individual projects may vary or fail, is absolutely economically sound and where some of us have been pushing fiscal policy to go for some time.”