Biden Unveils Tax Proposal to Pay for New Jobs Plan by Timothy Larson, CPA
At the center of President Biden’s plan to rebuild the country’s infrastructure, create jobs and increase production of clean energy is a proposal to raise $2.3 trillion over 15 years, in large part, by increasing the corporate tax rate and reforming the international tax system.
According to the administration, the Tax Cuts and Jobs Act (TCJA) signed into law by former-President Trump in 2017, “only made an unfair system worse” by providing corporations with new incentives to shift plants, profits, and jobs overseas. To help rectify this situation and pay for The American Jobs Plan while reducing the federal deficit, the administration unveiled the Made in America Tax Plan, which includes the following proposed provisions:
- Increase the corporate tax rate from 21 percent to 28 percent, which is lower than the 35 percent rate in effect for more than 20 years prior to the TCJA.
- Require large corporations with $2 billion or more in net income to pay a 15 percent minimum tax on the book income they report as profits to investors.
- Increase the tax rate on foreign profits earned by U.S. multinational corporations by doubling the global intangible low-taxed income (GILTI) tax rate introduced by the TCJA from 10.5 percent to 21 percent and applying it on a country-by-country basis.
- Eliminate tax deductions that allow U.S. multinational corporations to pay zero taxes on the first 10 percent of returns of foreign assets they located in foreign countries.
- Repeal the tax deduction of up to 37.5 percent for foreign derived intangible income (FDII), which was introduced by the TCJA as a new category of taxable income earned from exporting tangible and intangible products and services held in the U.S. and sold to foreign customers.
- Introduce a tax credit for jobs brought back to the U.S. and eliminate deductions for offshoring jobs.
- Repeal the base erosion and anti-abuse tax (BEAT) regime.
- Eliminate subsidies and foreign tax credits for the fossil fuel industry and ensure polluting companies pay for the costs of environmental cleanups.
- Expand IRS enforcement of corporate tax laws.
As part of this plan, the president has committed to work with other countries and establish a global minimum tax rate that ensures no one country has a substantial tax advantage over another. Separately, the administration introduced a series of corporate tax credits to reward those businesses that reduce carbon emission, produce and invest in clean energy, and expand infrastructure services, such as affordable housing, in underserved communities.
Whether any of the administration’s proposals under the American Jobs Act or the Made in America Tax Plan will receive congressional approval and be enacted into law is unknown. Yet, with the clarity of details provided by the administration’s reform priorities, U.S. multinational corporations and foreign-based businesses can and should use this time now to review their existing structures and assess their options for maintaining profitability, productivity and tax efficiency under a potential new regime. Working with experienced tax advisors and CPAs, companies can begin modeling the impact of the administration’s proposals – whether in full or in part – and begin considering a variety of tax-planning strategies to minimize the final impact under any congressional-approved reforms.
About the Author: Timothy Larson, CPA, is a director of Tax Services with Berkowitz Pollack Brant CPAs and advisors, where he works with privately-owned businesses, multinational entities and individuals on a wide variety of cross-border tax issues. He can be reached at the firm’s New York office at (646) 213-7600 or via email at info@bpbcpa.com.
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