U.S. Treasury Calls for More Taxes on Foreign Corporate Profits

(Bloomberg) -- President Joe Biden’s Treasury Department is calling for a “more robust minimum tax” on profits earned by U.S. corporations overseas to remove incentives for companies to shift earnings outside U.S. borders.

Making such a change is critical to maintaining domestic tax revenues and protecting American workers, Kimberly Clausing, the Treasury’s deputy assistant secretary for tax analysis, said in prepared remarks to the Senate Finance Committee on Thursday.

Clausing’s comments are at the core of discussions among Democrats as they look to draw up legislation that would increase taxes on corporations and wealthy Americans. Biden is planning to propose an increase in the domestic corporate rate to 28%, and he also campaigned on taxing foreign profits at 21%. A formal plan is expected in the coming weeks.

But the idea is hitting resistance from the GOP. U.S. companies should not be “hamstrung by uncompetitive taxation,” Senator Mike Crapo, the top Republican on the Senate Finance Committee, said. “What we should not do is hastily change the system purely for the purposes of raising revenue, bringing inversions and foreign takeovers of U.S. companies right back to the forefront.”

Clausing dismissed those concerns, saying that U.S. corporations were already competitive before President Donald Trump’s 2017 tax law lowered the domestic corporate rate to 21% from 35% and instituted a complex international system that imposes about a 13% tax on foreign profits. After the tax cut, companies pay far less than their peers, she said.

“Concerns about the competitiveness of U.S. multinationals ignore the evidence,” Clausing said. “Both before and after the 2017 Tax Act, U.S. multinational companies are the envy of the world, not just for their high profits and market capitalization, but also for their tax-planning acumen.”

Read More: Sanders Proposes Bigger Tax Hikes Than White House Is Planning

Senate Budget Committee Chairman Bernie Sanders is proposing corporate tax increases that are even bigger than the ones Biden is considering.

Sanders, in an interview with NPR, said that he is planning to introduce legislation Thursday that would raise the corporate rate to 35%.

Sanders’s proposal illustrates the division among Democrats on the scope of the tax increases they should pursue as they look for ways to finance infrastructure, climate-change programs and other priorities. Democrats largely agree that businesses and wealthy households should pay more, but they have yet to debate the specifics.

The Biden and Sanders proposals are certain to be met with fierce opposition from Republicans, who make up half of the Senate. Some portions of the plans could also face pushback from some moderate Democrats.

Sanders, a Vermont independent who caucuses with Democrats, also told NPR he would introduce a second bill that will create a surtax on the estates of the richest Americans. As Budget Committee chairman, his panel doesn’t have direct jurisdiction over the tax code, but Sanders said he sees his committee taking a broad approach to economic issues.

Biden’s Likely Tax Wins Are Personal-Rate Hikes, Audits of Rich

“What we want to do is use the committee to focus on the crises facing the working class of this country, the middle class of this country, talk about issues like income and wealth inequality,” Sanders said in the NPR interview. “In other words, look at the major issues facing our country and focus a spotlight on them.”

The Budget Committee is scheduled to hold a separate hearing Thursday on taxes that will include testimony from Abigail E. Disney, an heiress to the Walt Disney Co. fortune, who also advocates for higher taxes on the wealthy, and Gabriel Zucman, the University of California at Berkeley economist who helped develop a tax plan for Senator Elizabeth Warren when she ran for president.

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