Raising the corporate tax rate will take a back seat until the country emerges from the economic downturn caused by the COVID-19 pandemic, Treasury Secretary nominee Janet Yellen assured Senate Republicans.
Several Senate Finance Committee Republicans during Yellen’s confirmation hearing January 19 questioned whether, in the current economic climate, the former Federal Reserve chair supported an increase in the corporate tax rate as suggested by President-elect Joe Biden.
Although Yellen said the administration’s focus would be to help working families and not raise taxes in the short term, she didn’t refuse to support a potential increase in the corporate tax rate. Biden proposed increasing the rate from 21 percent to 28 percent.
Yellen said she would work with the OECD to prevent a race to the bottom in terms of corporate taxes. “In that context, we would assure the competitiveness of American corporations even with a somewhat higher corporate tax,” she said.
Republican taxwriters, like Sens. Rob Portman of Ohio and Todd Young of Indiana, said they were concerned that a corporate tax hike could lead to a familiar problem of companies engaging in corporate inversions and moving their headquarters elsewhere to capture a lower tax rate.
Yellen said Biden has been clear that he doesn’t want to reverse the entire Tax Cuts and Jobs Act. She added, however, that “there are some areas” he would amend, one of them being an incentive for companies to move operations overseas.
Portman also questioned Biden’s proposal to double the global intangible low-taxed income rate, concerned that it would again lead to companies finding new ways of avoiding their tax obligations.
Mum on SALT
Yellen also refused to say whether she supported repealing the $10,000 state and local tax deduction cap put in place by the TCJA. Senate Finance Committee Chair Chuck Grassley, R-Iowa, asked whether repealing the SALT deduction cap made sense during the pandemic and if she would include it in a relief bill. Yellen said only that it was “critical to study and evaluate the impact on state and local governments” and how it’s affecting their ability to provide services.
House Democrats repealed the cap in 2019 with the support of some Republicans and more recently included a temporary repeal in the Health and Economic Recovery Omnibus Emergency Solutions Act (H.R. 925).
Sen. Robert Menendez, D-N.J., who has been an active supporter of repealing the cap, didn’t mince words when telling Yellen how the SALT deduction cap has hurt his constituents and criticized other states for taking more in federal taxes than they give. “You can’t have states continue to be economic engines and be hurt by the property tax deduction,” he said.
Big-Package Support
Yellen indicated that she supported a big relief package to help the economy and average taxpayers, telling lawmakers it would get the country back on its feet. Republicans weren’t interested in adding to the deficit. Sen. John Thune, R-S.D., said lawmakers already approved a $900 billion package in December 2020 and that additional help should be more targeted than the $1.9 trillion plan Biden rolled out.
Biden’s plan would not only boost unemployment and state funding but also improve the child and earned income tax credits. That has overwhelming support among Democrats, who want to see long-term reform for the two refundable credits. Yellen agreed with Senate Democrats Sherrod Brown of Ohio and Michael F. Bennet of Colorado that the child tax credit could help lift children out of poverty. The two lawmakers introduced the Working Families Tax Relief Act together in the last Congress.