With the new tax plan, President Biden aims at undoing much of the structure that Republicans built in their tax law less than four years ago, driving up rates on large U.S.-based companies and raising taxes on their foreign profits.
What is the new tax plan about?
The plan is to generate about $2 trillion over 15 years to pay for the infrastructure spending that the new president has outlined. To do so, the corporate tax rate would be raised to 28% from 21%, and minimum taxes on U.S. companies’ foreign income would be increased to make it harder for foreign-owned companies with U.S. operations to benefit from shifting profits to low-tax countries.
The Republicans’ tax law sought to make the U.S. corporate tax system similar to other countries’ systems. But, the Biden plan is also counting on the Democratic administration’s ability to get other countries to impose similar tax regimes.
Biden’s team explains
David Kamin, deputy director of Mr. Biden’s National Economic Council said, “This plan reflects a focus on trying to push the world toward a multilateral solution that would even the playing field.”
To tackle the problem of some companies exploiting tax loopholes to pay less tax or evade it completely, the new plan would also add a 15% minimum tax on the financial-statement income of large corporations.
According to the administration, this plan should not be seen from a stand-alone point of view, but as an attempt to prevent companies from dodging corporate taxes. If other countries adopt similar minimum taxes, U.S. companies would be on much more equal footing.
Other reactions in the highlight
To this, Mr. Kumar, who now is at accounting firm PricewaterhouseCoopers LLP said, “It seems beyond heroic to assume that the rest of the world is going to agree to a minimum tax regime that is anywhere near as onerous as the one being proposed by the administration.”
Caroline Harris, chief tax policy counsel at the U.S. Chamber of Commerce said, “The bottom line is none of this moves us in the right direction or makes the U.S. a more attractive place to invest for U.S. companies or foreign companies.” The U.S. Chamber of Commerce supports infrastructure spending because it would increase long-term economic growth but prefers to pay for it with user fees such as gasoline taxes rather than corporate tax increases.
Sen. Ron Wyden, the top tax writer in the Senate, praised the plan’s direction in making corporations “pay their fair share” but noted that he’s unveiling his international tax ideas next week. And Rep. Richard Neal, his House counterpart, issued a statement backing the infrastructure plan without mentioning the taxes at all.
Susan Morse, a tax law professor at the University of Texas said, “It is likely to accomplish the goal of strengthening the corporate tax, in the sense of collecting more tax revenue somewhere.” She further said that some of the money may go to foreign governments because they would be able to raise their tax rates toward the new U.S. minimum tax level without fear of driving activity out of their countries.
A previous rule misunderstood?
Mr. Biden would also remove a rule that lets companies exclude 10% of their foreign tangible assets from the base of the minimum tax. Democrats and administration officials say that the break provides an incentive to build factories abroad.
Loren Ponds, who helped write the 2017 law, disputed the above view of the new plan. She said The idea was that companies were allowed to exclude 10% because they often use factories and equipment in foreign countries to serve foreign markets, not to dodge U.S. taxes.
Ms Ponds, who is now a lawyer at Miller & Chevalier Chartered in Washington, further added, “What we want to do in any tax bill is keep U.S. multinationals competitive and of course encourage domestic activity.” “Under these proposals, I think there is just a denial of the fact that in 2021, companies operate globally.”