BRUSSELS — The United States is hopeful that Ireland will drop its resistance to joining the global tax agreement that it is brokering, as Treasury Secretary Janet L. Yellen made the case to her Irish counterpart this week that it is in its economic interests to join the deal.
During a weeklong trip to Europe, Ms. Yellen worked to gather more support for a global plan that is intended to put an end to tax havens and curb profit shifting with a new global minimum tax. The agreement, which gained the support of the Group of 20 nations on Saturday, would usher in a global minimum tax of at least 15 percent. It would also change how taxing rights were allocated, allowing countries to collect levies from large, profitable multinational firms based on where their goods and services were sold.
“For Ireland, low taxes has been an economic strategy that has been incredibly successful,” Ms. Yellen said in an interview on Tuesday ahead of her return to Washington. “They see it as very vital to their economic success. And I think to go along with it, probably they need to be able to make the case that it’s in the interest of the country.”
Ms. Yellen held high-stakes meetings in Brussels this week with Paschal Donohoe, Ireland’s finance minister and president of the Eurogroup, a club of European finance ministers. She needs Mr. Donohoe’s support because the European Union requires unanimity among its members to formally join the deal, which will require changes to domestic tax laws.
After meeting with Ms. Yellen on Monday, Mr. Donohoe struck a positive tone and said he would continue to engage in the process.
Despite growing global support for the deal, much work remains to be done.
More than 130 countries have backed a framework of the global agreement, which would be the largest shake-up of the international tax system in decades, but important holdouts like Ireland, Hungary and Estonia remain. With stops in Venice and Brussels on her first trip to Europe as Treasury secretary, Ms. Yellen worked with her counterparts to develop a strategy for getting those countries to drop their concerns and join the agreement so that a final pact can be secured by October.
Ms. Yellen told her Irish counterpart that Ireland’s economic model would not be upended if it increased its tax rate from 12.5 percent, noting that it would still have a large gap between its rate and the 21 percent tax rate on foreign earnings that the Biden administration has proposed.
The Biden administration believes that the agreement, if enacted, will end the “race to the bottom” on corporate taxation, heralding a new era of corporate governance that will help nations finance new infrastructure investments and reduce inequality. Greater tax fairness could also aid in pushing back against the rise of right-wing populists, who have come to power around the world on a wave of frustration that working-class citizens have been forgotten by the elites.
“Globalization is not just serving to enrich the rich further and harm the poor,” Ms. Yellen said. “In some broader sense the international tax piece is about that.”
Top economic officials are working out complicated details of the global tax plan and will be scrambling to finish them in the coming months. One thorny issue that emerged at the G20 meetings in Venice last weekend was how tax revenue will be allocated around the world as part of a new tax on the largest and most profitable companies.
Daily Business Briefing
July 13, 2021, 6:52 p.m. ET
Selling the agreement in the United States could be the biggest challenge. Congress is narrowly divided, and Republicans have been adamant that they will not support tax increases, giving the Biden administration a narrow margin for success even if it is able to pass most of its proposed tax changes with only votes from Democrats.
Republican lawmakers have complained that the United States is “surrendering” its tax base by allowing other countries to impose new levies on its companies. For instance, in some cases, China will be able to collect new tax revenue from American businesses that sell products there. However, the United States will probably be able to collect taxes from some Chinese companies that do business in the United States. It is not clear if China would have a net gain from that part of the deal.
Ms. Yellen portrayed the global tax as part of a broader economic reckoning that the Biden administration believes needs to happen in order to prepare the United States — and the rest of the world — for future fiscal needs.
She pointed to the Biden administration’s tax plans, which include raising the corporate tax rate to 28 percent from 21 percent, as central to that approach, saying the administration wants to address what she considers to be the unfairness of the tax code in the United States.
“It just isn’t right for very successful companies to be able to avoid paying their fair share to support expenditures that we need to invest in our economy, to invest in our work force, in R.&D. and a social safety net that’s operational,” Ms. Yellen said.
Yet resistance is mounting from corporate America, with business groups warning that the possibility of $2 trillion in corporate tax increases would make American companies less competitive around the world. And with rising prices continuing to be a concern among policymakers in the United States, business interests have said the tax increases could fuel inflation, as companies pass them on to consumers.
Ms. Yellen dismissed that theory, arguing that most of the economic research has found that corporate tax increases mostly fall on past investments and would not harm workers or lead to prices rising faster.
“There’s no reason to think that changing corporate taxes would have some direct impact on prices,” Ms. Yellen said.