(Bloomberg) – Janet Yellen proved her reputation as a political dealmaker by leading the world’s richest economies to a global tax settlement that had escaped negotiators for nearly a decade.
But what was hailed as a Group of Seven victory for President Joe Biden’s Secretary of the Treasury may not go very far in Washington, where legislature support for the government’s extensive tax and spending hike plans will be a far more difficult challenge.
The G-7 finance ministers in London on Saturday sealed a landmark deal paving the way for countries to collect more taxes from large corporations and setting a minimum global corporate tax rate of at least 15%. That would signal the end of decades in which nations compete against each other to lower taxes and erode their collective revenues.
Yellen’s role is “crucial” and “crucial,” said the European Union’s economic leader, Paolo Gentiloni, at a press conference at the end of the G-7 meeting. “We were in the middle of nowhere six months ago,” he said.
However, a final, global deal is still a long way off. Talks will resume next month when Italy receives Yellen and her colleagues for a group of 20 meeting. Each agreement must also be supported by a majority of around 140 nations involved in negotiations within the Organization for Economic Co-operation and Development.
Then Yellen will have to take it to Congress – and Republicans are already signaling that they will be hard to convince.
The G-7 deal could “adversely” and “ultimately harm” American workers and businesses, said Senator Mike Crapo and Rep. Kevin Brady in a statement released on Saturday. You are the senior Republican on the tax committee of Congress.
Nevertheless, the agreement shows that Yellen is making the transition from head of monetary policy to international financial diplomat. The 74-year-old former chairman of the US Federal Reserve caused a stir in the global tax talks that have been going on since 2013.
“We revitalized those tax negotiations by really listening to their concerns about digital taxes,” Yellen said, referring to G-7 colleagues who had levied mostly on American tech giants.
The second key was to develop “a creative” strategy and new alternatives “that could bring us out of a dead end and find something that is fair on all sides,” she said in an interview on Sunday during her return flight from London.
At just over six feet tall, Yellen’s personal demeanor is modest. She disregards the pomp that comes with being a cabinet secretary; she is referred to simply as “Janet” by many of her new Treasury staff.
On the way to and from the G-7, she was seen towing her own bright red suitcase.
Her more than two decades of experience at the Fed have given Yellen the kind of intellectual weight valued on both sides of the political corridor. Still, the Brooklyn native got into her new job as Biden’s key economic policy maker with little practice to reach public consensus.
Finance ministers around the world have known her as a central banker, not as a deal-maker on a global stage as in recent days, noted a G-7 official on condition of anonymity.
– Paolo Gentiloni (@PaoloGentiloni) June 5, 2021
As vice chairman and then chairman of the Fed from 2010 to early 2018, Yellen worked with foreign counterparts and banking titans during the world’s largest economy continued to recover from its collapse and depression.
All of this has been done with less political interest and oversight associated with fiscal policy. Although her job has changed, Yellen still does not see herself as a politician.
“It’s not that different from what I did,” said Yellen at the Fed about her work as CFO at the G-7. While monetary policy decisions would be discussed privately, the board members and chief executives of the twelve Fed district banks would speak publicly about their views on the economy and policy decisions, Yellen noted.
Yet such interlocutors are part of a single institution, while as CFO in London she argues with people like the French Finance Minister Bruno Le Maire, whose political career spans more than 15 years, and the Japanese Taro Aso, a former Prime Minister.
Before arriving in London, Le Maire increased pressure on the US, saying it was “essential” to reach an agreement by Friday on taxing digital giants like Amazon.com Inc. – something a number of American lawmakers have come out against to have.
Yellen stated that she first approached the job as a student, learning the subjects from experts like Itai Grinberg, who she hired at the Treasury Department.
Yellen relied on Grinberg, who was previously a law professor at Georgetown University specializing in international tax and commercial law, to work with colleagues to find new solutions to the year-long international tax blockade.
Grinberg, 45, previously worked as an external advisor to the OECD and is now Deputy Assistant Secretary for Global Tax Policy at the Treasury Department.
Yellen met with her G-7 colleagues as a group and then bilaterally during the meeting. She started a few meetings, openly acknowledging that while she has a strong background in monetary policy, she was new to global tax policy – but that she spent time deepening her knowledge, an official said.
“What you need to do is find a way that takes into account the interests and perspectives of different partners to make them feel that they may compromise – but their core interests and concerns are understood and addressed,” said Yellen.
– With the support of Alberto Nardelli.
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