What Is the Point of a Global Minimum Corporate Tax Rate?

One of the first acts that Treasury Secretary Janet Yellen called for was a global minimum corporate tax. It’s part of the pitch from the Biden administration to create a $1.9 trillion infrastructure and jobs proposal package.

Although countries can set tax rates for companies at their discretion, it has become a race to the bottom for most governments in recent years. By having the G20 nations band together to create a starting point that everyone must follow, the goal is to create a more level international playing field.

As part of the proposal, the United States would increase the minimum tax to 21% and calculate it based on each country to deter profit sheltering. It also raises the corporate tax rate to 28%, which is still lower than the 35% it was at before the Trump administration and Congress cut taxes.

It’s Not the First Time Yellen Called for This Action

Yellen had called for a global minimum corporate tax rate during her confirmation process. It’s an issue that has been discussed in recent years, including in 2019 when finance ministers discussed how to have multinational companies pay a minimum tax instead of shifting profits to nations with lower rates.

Although that idea never came to fruition, there is a recognized need to ensure companies cannot manipulate their numbers to avoid their responsibilities.

It isn’t about how American companies can stay competitive with the rest of the world through mergers and acquisitions. A global minimum corporate tax rate ensures that every country has stable taxation systems that raise sufficient funds for public services.

Without appropriate funding, crises don’t receive the necessary response to save lives and help others. When everyone can fairly share the burdens of government financing, including corporations, it makes things easier on everyone.