Treasury Secretary Janet Yellen unveiled a detailed sales pitch for the Biden administration’s proposed new corporate-tax code, a plan that she said would be fairer to all Americans, remove incentives for companies to shift investments and profit abroad and raise more money for critical needs at home.

Expanding on the tax proposals released last week in President Joe Biden’s US$2.25 trillion economic package, the Treasury said the changes, over a decade, would bring back about US$2 trillion in corporate profits into the U.S. tax net, with about US$700 billion in federal revenue streaming in from ending incentives to shift profits overseas.

All told, the extra tax take of about US$2.5 trillion over 15 years would pay for Biden’s eight-year spending initiative, which is aimed at infrastructure, green investments and social programs that would support a larger labor force, according to the Treasury. Few major corporations would be untouched, with tech giants such as Apple Inc. and Microsoft Corp. likely to pay more.

“Our tax revenues are already at their lowest levels in generations, and as they continue to drop lower we will have less money to invest in roads, bridges, broadband and R&D,” Yellen told reporters during a phone briefing, referring to research and development. “By choosing to compete on taxes, we’ve neglected to compete on the skill of our workers and the strength of our infrastructure. It’s a self-defeating competition.”

Key Elements

The Treasury released a 17-page report Wednesday that will likely serve as a road map for administration officials and lawmakers seeking to navigate the combined package of spending and tax proposals through Congress in coming months.

The key elements of the corporate tax plan include raising the U.S. corporate rate to 28 per cent from 21 per cent, and imposing minimum taxes on both foreign earnings as well as the domestic profits that corporations report to shareholders, changes that would significantly increase the taxes companies owe.

The tax proposals already face sharp opposition from Republican lawmakers and pushback from some moderate Democrats. West Virginia Senator Joe Manchin has said he opposes a corporate tax rate above 25 per cent. With the Senate split 50-50, Biden cannot afford to lose the support of a single Democratic senator if he wishes to push through any portion of the package.

While most business groups, including the U.S. Chamber of Commerce and the Business Roundtable, have come out in opposition to the tax increases, some have acknowledged that there could be benefits from higher corporate taxes to fund infrastructure spending. Inc. Chief Executive Officer Jeff Bezos said Tuesday that he would support a tax-rate increase, but didn’t specify a number.

The proposal for a global minimum tax comes as the Organization for Economic Cooperation and Development is managing talks with about 140 countries, including the U.S., on establishing a worldwide levy on corporate profits. A global rate has yet to be decided, though prior proposals had suggested rates at roughly 12.5 per cent. Biden’s plan for 21 per cent would be significantly higher and could complicate negotiations.

The Treasury report featured a raft of data to support the administration’s case. U.S.-based companies that operate globally collectively paid a 7.8 per cent effective rate in 2018, the first year that former President Donald Trump’s tax cut went into effect, according to the non-partisan Joint Committee on Taxation. The year before, corporations paid 16 per cent.

Across member countries of the OECD corporate tax revenues are equivalent to an average 3.1 per cent of GDP. In the U.S., it’s 1 per cent, the Treasury said.

Worker Burden

That places an unfair burden on workers, made worse by Trump’s 2017 changes that cut corporate levies, according to the Treasury report. The report points to research showing corporations put more of their savings from the Trump tax cuts into share buybacks and dividend distributions than into new investments.

Profitable companies would no longer be able to use tax breaks to completely eliminate their federal tax bills and would have to pay at least 15 per cent on the profits reported on their financial statements, known as book income.

That levy would apply to corporations earning at least US$2 billion, an increase from a US$100 million threshold included in Biden’s campaign tax plan. About 180 companies have reported income at those levels in recent years and about 45 of those firms would have paid the minimum tax if Biden’s plan were in effect, the report said.

The average company facing the tax would have an increased minimum tax liability of about US$300 million a year, the Treasury said.

Tech Giants

Apple, Microsoft, Google parent Alphabet Inc., Facebook Inc. and Intel Corp. all had tens of billions in pre-tax income over the trailing 12 months with effective tax rates in the mid-teens, according to data compiled by Bloomberg.

Warren Buffett’s Berkshire Hathaway Inc. and Verizon Communications Inc. also were big earners in that period, with effective tax rates of about 22 per cent to 23 per cent, according to Bloomberg data.

Biden’s plan also calls to repeal central elements of Trump’s 2017 corporate tax overhaul, including the base erosion and anti-abuse tax, or “BEAT.” The measure, which is meant to punish companies that move profits offshore, has been criticized for taxing some non-abusive transfers while missing tax-avoidance strategies.

The Treasury said it plans to replace the BEAT with the “SHIELD,” an acronym for stopping harmful inversions and ending low-tax developments. That would block companies from deducting payments made to their affiliates in countries with tax rates lower than the 21 per cent rate on offshore profits. The plan would also include additional penalties for companies that try to move their headquarters to another country to escape the U.S. tax net.

Biden’s plan also calls for eliminating all subsidies specifically for oil and gas embedded in the tax code, including deductions for drilling costs. The Treasury Department estimates that would raise about US$35 billion in the coming decade.