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Treasury Secretary Janet Yellen concludes a one week trip in the Indo-Pacific, his first since taking office.
She represented the United States at G-20 finance ministers meetings in Bali before making additional stops in Tokyo and Seoul. And she campaigned for several of the global initiatives the United States aims to put in place, including a Russian oil price cap and a global minimum corporate tax.
The latter would involve countries adopting a minimum tax of 15% (and allowing governments to tax large companies based on where their goods and services are sold, as opposed to where they are headquartered) – in an effort to prevent companies from seeking lower tax rates. around the world.
Yellen, a longtime champion of the plan, has persuaded more than 130 countries to sign up. But the United States is not one of them: Republican Opposition prevented him from getting the votes needed to pass Congress.
And the way forward has just gotten more complicated, after Democratic Sen. Joe Manchin of West Virginia said last week during budget package negotiations that he would not support a bill that includes climate or tax provisions. .
He expressed his opposition to the global minimum tax in an interview with West Virginia radio host Hoppy Kercheval on Friday, saying he doesn’t support the plan because other countries have yet to pass the tax and he doesn’t want to disadvantage American businesses.
“I can’t do that, so we took that off the table,” Manchin said, referring to his Friday discussion with Senate Majority Leader Chuck Schumer, DN.Y.
It could take years for the United States to embrace the initiative, Yellen acknowledged in an interview Tuesday with morning edition. But she says it’s too important not to go back – and believes that if other countries pass a minimum corporate tax, they’ll push Congress to pass legislation that will also bring the United States into compliance.
“They will levy this tax on American companies doing business in their jurisdiction, and America will simply lose tax revenue that we could use to invest in the strength of our economy, in the middle class,” Yellen said. “So there will be incentives over time to adopt that in the United States.”
Yellen spoke to morning editionby Steve Inskeep from South Korea on the tax initiative, discussions around the Russian oil price cap and the prospects of a recession in the United States. Below are highlights of their conversation.
On the importance of a global minimum corporate tax:
Yellen describes the tax initiative as a way to close loopholes corporations have used to lower their own tax bills, depriving governments of revenue while shifting more of the tax burden to workers.
“So we have 137 countries that have agreed to hold hands, to say enough is enough and that we will establish a minimum below which we will not reduce corporate tax,” she explains.
The United States is currently the only country to have implemented this type of minimum corporate tax, with multinational corporations facing a Minimum tax of 10.5% on their foreign income. But it must increase this figure to 15% to bring itself into line with other countries.
When asked if this process could take years, Yellen replied “it’s conceivable”.
“I hope not,” she adds. “I hope we can pass this sooner and play a leading role.”
On how a Russian oil price cap works:
As Russia continues to wage war on Ukraine, the US wants to cut Russia’s oil money without cutting Russian oil from the world market – especially since the disruptions of the war have already increased the prices Americans pay for gas.
Yellen says the United States wants to deprive Russia of revenue it uses to fund the war in Ukraine, while protecting itself and its allies from the adverse effects of rising oil prices. But she notes that if more Russian oil is subtracted from global supply, oil prices could easily reach $140 or more a barrel.
“We want it to continue to be sold somewhere in the global economy to keep global oil prices generally low, but we want to make sure that Russia doesn’t take undue advantage of these sales,” he added. -she. “And a price cap is the answer we found to serve both of those purposes.”
Here’s how the US hopes it would work: European insurance companies are about to stop insuring tankers that carry Russian oil, which would completely block many Russian exports – unless Russia sells cheap oil.
Yellen says the exact level of the cap is still being decided, but it would be high enough for Russia to make a profit producing and selling it, for it to be economically beneficial for Russia to continue to supply the world oil market.
It should be noted that the oil price cap proposal has its share of skeptics. Some energy analysts and economists fear that trying to force Russia to accept less money than its oil is worth will backfire, as Russia could respond by limiting oil production and creating an artificial shortage. – which would hurt countries already struggling with high inflation and economic downturns.
Critics also point out that while the price cap would require the participation of all countries that buy Russian oil, two of them – India and China – are getting discounted oil from Russia and may not want to be not change the status quo.
And even if it were to happen, questions of application remain. For example: what would prevent Russia from circumventing the cap and selling its oil at a higher price on the gray market, an unregulated market?
Yellen says countries in the UK and EU would have the power to enforce such a price cap because their bans would prevent oil from moving if it were sold at a higher price.
“We call this a price exception, which the EU and UK will be willing to allow their businesses to provide insurance and provide trade finance and other services as long as buyers certify they have paid less than the capped price,” she says.
If she expects to see a recession in the United States:
Record gasoline prices pushed inflation to 9.1%, its highest level in 40 years, in June.
That’s harder for some households to absorb than others, Inskeep notes, citing the example of rural Americans who have to drive farther and pay higher prices for gasoline and household fuel with relatively low wages. .
Acknowledging that inflation poses a substantial burden on every American household, Yellen says reducing inflation is President Biden’s top priority.
“The price cap we are pursuing is one of the most important ways to ensure we don’t suffer further energy price increases that would hurt American households,” she said. “And of course the Fed is taking action to bring inflation down.”
The Federal Reserve announced last month that it had raised its benchmark interest rate by three-quarters of a percentage point — the biggest hike in nearly three decades (here’s what that means for Americans). Interest rate hikes slow the economy and historically can switch it in a recession.
So how does Yellen assess the risk of a US recession next year?
She points to the strength of the job market, calling it ‘full employment’: jobs are plentiful, people feel secure about their job prospects and the economy has been adding an average of around 400,000 jobs a month recently. .
“A recession is a general contraction of the economy,” says Yellen. “And that just doesn’t fit the kind of job market we see.”
She also notes that consumer spending has continued to grow, with retail sales well above their pre-pandemic trends and industrial production rising in four of the first five months of this year.
That said, she says economists were expecting growth to slow — and that’s fitting now that the United States has made up the pandemic shortfall. Yellen adds that the Fed will want to achieve “some kind of soft landing.”
“It’s something that will take skill and luck,” she says. “I hope it’s achievable. But let’s be clear, our economy faces risks. The war in Ukraine, global developments could further increase food and energy prices, commodity prices, we “We are seeing a slowdown in China. There are global risks and these pose risks to our economy.”
This interview was produced by Chad Campbell and Shelby Hawkins, and edited by Reena Advani and Jan Johnson.