On March 31, the Biden Administration presented a policy-packed proposal titled “The American Jobs Plan.” Members of the Coalition for a Prosperous America (CPA) can review the proposal’s many infrastructure spending efforts here. In addition to planned projects, the plan also contains numerous ways to pay for its $2.25 trillion price tag.
Here’s our top 5 corporate tax proposals in the American Jobs Plan that matter to domestic corporations:
1. Discourage Offshoring by Strengthening the Global Minimum Tax for U.S. Multinational Corporations
The Biden Administration recognizes that we need a more level playing field between domestic companies and multinationals. The Administration suggests altering the previous Tax Cut and Jobs Act’s GILTI provision to reduce the ability of U.S. multinational corporations to offshore in order to gain a better tax rate. The plan proposes eliminating the blending of reported taxes from tax havens with other foreign jurisdictions, and instead requires reporting on a country-by-country basis. This effort would significantly reduce American multinationals’ profit shifting. The proposal also eliminates the first 10 percent of carve-out exemptions for profits made offshore, and also increases the tax rate on GILTI profits to 21 percent.
2. End the Race to the Bottom Around the World
The American Jobs Plan also recognizes that GILTI reforms on U.S. corporations are insufficient. Foreign multinational corporations or inverted companies can still strip profits out of the United States just as easily as before 2017. The administration correctly plans to replace the failed Border Erosion Anti-Abuse Tax (BEAT) provision. However, foreign corporate profit-shifting must end too. What is less clear is the Biden administration’s proposed replacement—which leaves a great deal of leeway for ongoing international negotiations. The exact meaning has yet to be determined. But the administration could adopt select applications of Sales Factor Apportionment as a part of this proposal.
3. Enact A Minimum Tax on Large Corporations’ Book Income
During the 2020 election, the Biden campaign promised to enact a minimum tax on U.S. companies that report millions in book profits but report nearly no income for Uncle Sam. The Coalition for a Prosperous America points out that, while targeting the giant profit-shifting multinationals is necessary, only targeting American companies would put them at a disadvantage compared to their foreign competitors. The American Jobs Plan makes no mention of limiting this tax to American companies. Further details will make or break this proposal.
4. Deny Companies Expense Deductions for Offshoring Jobs, but Credit Expenses for Onshoring
The Administration has proposed a tax credit for bringing jobs back to the United States. The proposal is unclear regarding the tax credit details, but the Biden campaign had promised credits for reshoring of manufacturing jobs, reopening of facilities for more employment, and other job expansion opportunities. CPA hopes the administration explains these credits soon. But the plan also has a “stick” for offshoring. The Administration wants to deny expense write-offs associated with job offshoring. The penalty is vague but could indirectly yield results to help domestic manufacturing. The proposed offshoring disadvantage is less than the Biden campaign initially promised.
5. Eliminate a Loophole for Intellectual Property that Encourages Offshoring Jobs and Invest in Effective R&D Incentives
The “Foreign Derived Intangible Income” (FDII) gave corporations a tax break for moving their Intellectual Property (IP) assets into the U.S. for tax purposes. Separate R&D deduction benefits from the Tax Cut and Jobs Act will soon expire and were never connected to FDII requirements. The disputed results of FDII may suggest profit shifting or a lack of interest in participation. Therefore, the administration is proposing reallocating the benefits to continuing R&D benefits. The new R&D benefits may or may not require resultant IP to be allocated to the United States for tax purposes.
Further tax proposals of note or importance:
- Proposed Change to the Corporate Tax Rate from 21 percent to 28 percent.
- Additional anti-inversion rules or claiming tax havens as a corporate residence.
- Elimination of Tax benefits for Fossil Fuels.
- Restoring payments into the Superfund Trust Fund
- Increasing IRS funding to Increase Enforcement Against Large Corporations.
It is essential to recognize that the White House’s American Jobs Plan does not represent the potential final product. Specific details will likely arrive in the form of the U.S. Treasury Department’s “Green Book” of revenue proposals. Then, Congress will determine which aspects they find most appealing.