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A 21st Century Hamilton?


Treasury Secretary Janet Yellen is taking an aggressive approach to global corporate tax rates and digital currencies.

“Seventeen eighty-nine

How does the bastard orphan, immigrant decorated war vet

Unite the colonies through more debt? …

Treasury Secretary, Washington's the President …

I have my first cabinet meeting today

I guess I better think of something to say …”


In the musical, Hamilton, these words are sung by Thomas Jefferson, who has returned from France and is now taking up the mantle of U.S. Secretary of State. In both reality and in the Broadway smash, Jefferson will repeatedly clash with Alexander Hamilton, the nation’s first Secretary of the Treasury and the father of the U.S. banking system who was trying to “unite the colonies through more debt.” Jefferson and Hamilton, along with Secretary of War Henry Knox and Attorney General Edmund Randolph, made up President George Washington’s first cabinet.


The U.S. Constitution does not have much to say about executive branch agencies, other than giving U.S. senators the chance to approve or vote down nominees put forward by the President to lead them. As Senate historians note, “The framers assumed that the Congress would draft suitable legislation to allow the executive to manage the basic governmental functions of finance, foreign relations, and defense.”


Congress did just that and, in the early days of the republic, considered the U.S. Department of the Treasury “to be the most important” of the cabinet agencies. President Washington nominated Hamilton to head the department on September 11, 1789 and, following a bloody and expensive revolution, gave him wide latitude to right the nation’s financial ship. Flash forward more than 230 years and U.S. Treasury Secretary Janet Yellen — the first woman to occupy this cabinet office — also has been given a broad mandate from her commander in chief.


Indeed, Yellen has become a global leader on fiscal policy. In recent days, for example, she has taken a forceful position with her foreign counterparts, arguing for a global corporate tax system that she helped design. Domestically, Secretary Yellen has continued to call for a strong regulatory regime to govern digital assets — a position she assumed well before the most recent dive in crypto values, and recently waded into the political uproar following the leaked draft Supreme Court opinion that would reverse Roe v. Wade.


While there may not be a Broadway musical written about Janet Yellen two centuries from now, if she can pull off a global tax deal and oversee the implementation of a system for governing digital assets, her policies, like Hamilton’s, will have an impact for generations to come.


So let’s take a look at what is on Secretary Yellen’s agenda while lending future Lin Manuel Miranda a hand and trying to come up with words that rhyme with “global minimum tax” and “crypto.”


A 15 Percent Global Minimum Tax

While you’d be forgiven for thinking it was a century ago, it was only last October that Secretary Yellen and her counterparts from nearly 140 other countries, which collectively represent more than 90 percent of the global economy, agreed in principle to a new global corporate tax system. If implemented (a big “if” as we discuss in just a bit), the framework would represent a significant shift for the global corporate landscape.


The agreement has two parts. The first pillar would change where the world’s biggest companies pay their taxes and the second pillar would set a global minimum corporate tax of 15 percent. The minimum tax would apply to corporate overseas profits that exceed about $868 million in sales globally. Individual governments could “still set whatever local corporate tax rate they want,” Reuters explains, “but if companies pay lower rates in a particular country, their home governments could ‘top up’ their taxes to the 15 percent minimum, eliminating much of the advantage some corporations realize by shifting profits” overseas.


This week, Secretary Yellen was in Warsaw to try to convince Polish leaders to accept the plan. Poland is the only country in the European Union that has not yet agreed to the framework, and its concurrence is necessary to ensure the plan moves forward in that bloc. Even though the minimum tax reportedly would bring Poland an additional $2.08 billion in annual tax revenue, Secretary Yellen’s talks this week — by her own admission — have been unsuccessful, though Yellen fared much better in Warsaw than did Hamilton at Weehawken.


Polish authorities are not the only ones that Secretary Yellen needs to convince of the merits of the global plan, of course. As readers are well aware, while the U.S. Constitution does not have much to say about the make up of the executive branch, it has plenty to say about tax policy. Specifically, who’s in charge of it. And it isn’t the Treasury Department. The Founders provided Congress with the power of the purse.


For Secretary Yellen, that could problematic. Bloomberg predicted this week that the global tax plan eventually would die in the U.S. Senate. Sen. Mike Crapo (R-Idaho), the lead Republican on the Senate Finance Committee, which is charged with writing federal tax policy, said implementing last October’s global agreement “would be a terrible mistake.” Sen. Crapo’s view is widely shared by Republicans, which will make it difficult – likely impossible – for the tax plan to advance in the upper chamber.


After Secretary Yellen inked the deal last fall, Senate Republicans wrote a letter arguing the global tax deal should not be considered legislation, but a treaty. Why? “As a law, it will need only a majority in each chamber [under Senate reconciliation rules],” but if it is treated as a treaty, the framework would need the approval of two-thirds of the Senate. As Forbes wrote back in October, “Time and again, agreements have died trying for the Senate two-thirds for ratification. The most famous is the Treaty of Versailles in 1919, ending World War I. Senate Republican isolationists defeated that treaty,” which crippled the nascent League of Nations.”


Last June, even before the outline was agreed to, Secretary Yellen wrote to Sen. Crapo defending the global minimum tax. She argued that it “has the special virtue of helping level the playing field for U.S. business” and would ensure that countries “compete with one another on more positive bases, such as the education and training of the labor force, stability of the legal system, and ability to innovate — areas in which the United States has a comparative advantage.”


As economic issues take center stage in the 2022 midterm elections, we expect to hear this argument more and more. After all, if Democrats lose control of the Senate and House (or even one of the chambers), Secretary Yellen’s global framework is really, most sincerely dead.


But even as she is working to advance this global corporate tax framework, Secretary Yellen, is also taking a leadership role on digital currency and how the U.S. government should regulate it.


A Longtime Advocate for Crypto Regulation

During a House committee hearing last week — while digital asset prices were tumbling — Secretary Yellen said, “We really need a regulatory framework to guard against the risks … we need a comprehensive framework so that there are no gaps in the regulation.” But the secretary’s advocacy for regulation goes back much further than even the last few months.


As The Washington Post has reported, back in April 2018, Secretary Yellen (who was not in her current position at that point), attended a Brookings Institution briefing on cryptocurrencies for central bankers. According to the scholar who gave the presentation, “Yellen seemed to share the view that these were not a viable set of financial assets, and that getting them regulated properly would be a challenge, but one that was important to do.” In the years after the briefing, according to The Post, Secretary Yellen’s “initial wariness … quickly morphed into outright hostility.”


Indeed, at her confirmation hearing to be Treasury secretary, Yellen said, “I think many [cryptocurrencies] are used … mainly for illicit financing and I think we really need to examine ways in which we can curtail their use ...” Notably, Yellen used the word “mainly.” Not sometimes, or even often. The main purpose of digital assets, she believes, is nefarious. Secretary Yellen issued the same warnings in February 2021 shortly after her confirmation and she has continually promised to crack down on people and organizations that use digital currencies for illegal purposes.


Secretary Yellen also was calling for stablecoin regulation long before last week. In a November report by the President’s Working Group on Financial Markets, Secretary Yellen “lets loose about stablecoins,” according to the Crypto Valley Journal, arguing they lack “adequate oversight poses risks to users and the broader system.”


Then, in a speech at American University this past April, Secretary outlined six principles that will guide the Biden administration’s regulatory plans for crypto. They are:

· Protect consumers, investors, and businesses;

· Safeguard financial stability from systemic risk;

· Mitigate national security risks;

· Promote U.S. leadership and economic competitiveness;

· Promote equitable access to safe and affordable financial services; and

· Support responsible technological advances by taking into account related issues like privacy, human rights, and climate change.


Secretary Yellen pledged that her department would take the next six months to “work with colleagues in the White House and other agencies to produce foundational reports and recommendations related to these objectives.”


In its story about Secretary Yellen and digital currency regulation, The Washington Post concludes, “The policies Yellen decides on will shape the future of trillions of dollars and a form of exchange now traded … by more than 40 million Americans. They could also prove an underappreciated part of her legacy.”


A global minimum corporate tax regime and digital asset regulations may not be the stuff of Broadway musicals, but both could have a significant impact on the global economic landscape for generations to come.

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