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President Biden’s “Made in America Tax Plan”

By James T. Chudy

Alert

By James T. Chudy

Takeaways

Corporate tax proposals in support of President Biden’s ambitious infrastructure plans would raise some $2 trillion over 15 years.
Tighter international tax net would apply to corporations operating in low-tax jurisdictions.
Plan faces long road ahead for passage in Congress.

04.02.21

On March 31, 2021, President Biden’s administration proposed the “American Jobs Plan” to create domestic jobs, rebuild national infrastructure and increase American competitiveness. To fund its expected $2 trillion price-tag, the administration also proposed the “Made in America Tax Plan,” which is intended to raise that amount or more over 15 years through a mix of incentives for domestic spending, renewed tightening of offshore profit shifting and higher income tax rates on corporations. The plan reverses or modifies several important provisions enacted in the 2017 Tax Cuts and Jobs Act (TCJA) and focuses primarily on corporate income taxes. This plan includes no individual income, capital gain or estate tax hike proposals, although it hints at them. President Biden has pledged not to increases taxes on individuals earning less than $400,000.

Billed as a “generational opportunity to fundamentally shift how countries around the world tax corporations,” the plan includes many of the corporate income tax proposals released by President Biden’s campaign late in 2020. The plan is ambitious and includes the following:

  • Corporate income tax rate. A proposed 28 percent corporate income rate, up from the current 21 percent rate but well below the pre-TCJA 35 percent rate.
  • Global minimum tax on U.S. multinational corporations. A 21 percent minimum tax on domestic corporations, calculated on a country-by-country basis, including low-tax and tax haven jurisdictions. In effect, the provision would double the effective tax rate on global intangible low-taxed income (GILTI), assess it on a country-by-country basis and eliminate GILTI’s 10 percent allowance for foreign tangible assets.
  • International minimum taxes. The United States would encourage a global corporate minimum income tax standard through a negotiated multinational agreement. To encourage acceptance of this vision, the proposal would deny deductions on potentially profit-stripping payments to a foreign corporation based in a country that does not adopt a strong minimum tax.
  • Management and operation residence standard. To backstop other anti-inversion provisions, corporate residence for U.S. federal income tax purposes would consider the place of management and operations.
  • Domestic jobs incentives. Deductions for “offshoring” jobs would be denied, and a tax credit would be provided to support “onshoring” jobs.
  • Repeal of TCJA’s foreign derived intangible income (FDII) provisions. Revenue derived from the repeal would be used to expand R&D investment incentives.
  • Corporate alternative minimum tax. Fifteen percent minimum tax on the “book income” of very large corporations. “Large” is undefined in the plan, but candidate Biden’s proposal applied to corporations with book profits of $100 million or more.
  • Green slant. Fossil fuel preferences would be eliminated, and Superfund payments reinstated, in furtherance of President Biden’s 2050 net-zero emissions goal.
  • Internal Revenue Service funding would be increased, and to-be-announced broader enforcement initiatives will address tax evasion among corporations and high-income Americans.

President Biden hopes to garner bipartisan support for the plan, but that may be difficult. It is possible for the legislation to pass the Senate with a majority vote (rather than 60 percent vote) if the Democrats use the budget reconciliation process or eliminate the Senate filibuster. Other difficulties surely lie ahead. For example, certain Democratic senators object to any plan that does not reinstate the deduction for state and local taxes paid by individuals, and some of the international provisions need to be coordinated with ongoing efforts by the Organization for Economic Co-operation and Development (OECD) to develop international standards for taxing global income of multinational enterprises.

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Tax
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