On March 31, 2021, President Joe Biden released his $2 trillion American Jobs Plan, which includes a variety of infrastructure spending proposals accompanied by significant corporate tax increases. The administration states that the corporate tax changes, known as the Made in America Tax Plan, will raise more than $2 trillion over the next 15 years and “more than pay for the mostly one-time investments in the American Jobs Plan and then reduce deficits on a permanent basis.” The Biden administration stated that the corporate tax plan “incentivizes job creation and investment here in the United States, stops unfair and wasteful profit shifting to tax havens, and ensures that large corporations are paying their fair share.”
The Made in America Tax Plan, which includes corporate tax changes first discussed during the 2020 presidential campaign, provides some specific proposals and other general principles that will guide the administration’s tax policy. The main corporate tax proposals are to increase the corporate tax rate, reform the global intangible low-taxed income (GILTI) rules, pursue a global minimum tax, implement stronger anti-inversion rules, deny deductions for offshoring jobs, eliminate the Foreign Derived Intangible Income (FDII) deduction, impose a 15 percent minimum tax on “book income” for large corporations, end tax preferences for fossil fuels, and increase Internal Revenue Service (IRS) funding for enforcement.
Made in America Tax Plan Proposals
While the plan does not provide details for each tax change, it proposes to:
- Increase the corporate tax rate: The plan proposes to raise the corporate tax rate from 21 percent to 28 percent, reversing a tax cut from the Tax Cuts and Jobs Act, which lowered the corporate tax rate from 35 percent to 21 percent.
- Reform the GILTI rules: The plan proposes to increase the GILTI minimum tax rate from 10.5 percent to 21 percent; apply the minimum GILTI tax on a country-by-country basis rather than on the current aggregate basis; and end the tax exception on the first 10 percent of the return on the depreciable fixed assets of a controlled foreign corporation.
- Pursue a global minimum tax: The plan proposes to encourage other countries to adopt strong minimum corporate taxes and deny foreign corporations deductions on “payments that could allow them to strip profits out of the United States if they are based in a country that does not adopt a strong minimum tax.” The plan also proposes to replace the IRC Section 59A Base Erosion and Anti-Abuse Tax (BEAT), which it describes as “an ineffective provision in the 2017 tax law that tried to stop foreign corporations from stripping profits out of the United States.” It also declares U.S. commitment to “seeking a global agreement on a strong minimum tax through multilateral negotiations.”
- Implement stronger anti-inversion rules: The plan states that it will prevent U.S. corporations from “inverting or claiming tax havens as their residence.” The administration notes that this will “backstop the other reforms which should address the incentive to do so in the first place.”
- Deny deductions for offshoring jobs and provide tax credits for onshoring: The plan states that it will “make sure that companies can no longer write off expenses that come from offshoring jobs” and that it will “provide a tax credit to support onshoring jobs.” This is similar to the Biden campaign proposal for a 10 percent advance “Made in America” tax credit to promote domestic investment in manufacturing and re-shoring production.
- Eliminate the FDII deduction: The plan states that the FDII deduction “gave corporations a tax break for shifting assets abroad and is ineffective at encouraging corporations to invest in R&D.” It aims to repeal the deduction and use “the resulting revenue to expand ‘more effective’ R&D investment incentives.”
- Implement a 15 percent minimum tax on “book income” for large corporations: The “book income” tax proposal would effectively reverse the Tax Cuts and Jobs Act’s repeal of the corporate alternative minimum tax (AMT). Earlier Biden campaign statements defined large corporations as those with net income of more than $100 million.
- Eliminate tax preferences for fossil fuels: The plan proposes to eliminate “subsidies, loopholes, and special foreign tax credits for the fossil fuel industry.”
- Increase IRS funding for enforcement: Lastly, the plan proposes to increase IRS funding so the agency “has the resources it needs to effectively enforce the tax laws against corporations.”
The American Jobs Plan is the first part of the Biden economic plan that will later include initiatives focused on health care, childcare, and education, and focus on changes to individual taxes. The House of Representatives and the Senate will likely consider a bill incorporating the Made in America Tax Plan in the coming months.
Republican opposition to tax increases means that any tax bill will likely need unanimous support from Senate Democrats and near unanimous support from House Democrats. This could also give moderate Democrats, like Senator Joe Manchin of West Virginia, greater influence on a final bill and could result in the elimination of some provisions.
Democrats could pass a bill without Republican support through the reconciliation process, which allows the Senate to pass budget legislation with limited debate and a simple majority vote. Congress used this process earlier in 2021 to pass the American Rescue Plan Act of 2021. Congress has historically passed only one reconciliation bill per year, but it is possible for Congress to pass a second reconciliation bill in 2021 by passing a reconciliation bill for fiscal year 2022, which begins on October 1, 2021.
The specific tax provisions to be included in the Made in America Tax Plan may take months to negotiate. We will monitor these negotiations and report on developments as they arise.
For questions on how these corporate tax proposals might affect your business, contact us. We're here to help.
Authored by Phil MacFarlane.
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