On March 31, 2021, the Biden administration unveiled a job and infrastructure plan, the American Jobs Plan, to address the nation's pressing infrastructure needs. The plan calls for about $2 trillion in spending over eight years. To pay for these expenditures, the plan also includes a proposed overhaul of the corporate tax system that would increase the corporate tax rate and the global minimum tax, eliminate federal tax benefits for fossil fuel companies, and strengthen enforcement against corporations.
While the proposed spending would be spread out over eight years, the tax increases would continue for 15 years.
Proposed Tax Measures
The White House released a Fact Sheet that lists the proposed tax measures under the plan:
Corporate Tax Rate -- The Biden plan would increase the corporate tax rate from 21% to 28%. The Trump administration had reduced the rate from 35% to the current rate of 21%.
Global Intangible Low-Taxed Income (GILTI) Modifications – President Biden's proposal would increase the effective rate on GILTI for U.S. corporations to 21% and calculate GILTI on a country-by-country basis. It also would eliminate the rule that allows U.S. companies to reduce their GILTI inclusion by 10 percent of their average adjusted basis of qualified business asset investments.
Encourage Other Countries to Adopt a Minimum Tax Regime – The plan proposes to encourage other countries to adopt strong minimum taxes on corporations and deny deductions to foreign corporations on payments that could allow them to strip profits out of the U.S. if they are based in a country that does not adopt a strong minimum tax.
Inversions – In addition to enacting reforms that would remove U.S corporations' incentives to invert, President Biden's proposal would make the inversion process more difficult.
Offshoring/Onshoring Jobs –President Biden's reform proposal would deny companies deductions generated by offshoring jobs and would also propose a tax credit to support the onshoring of jobs.
Eliminate the Foreign Derived Intangible Income (FDII) deduction and Invest in R&D Incentives – The Biden plan proposes the complete elimination of the FDII deduction, which was introduced as part of the Tax Cuts and Jobs Act. The revenue collected as a result of the repeal of the FDII deduction would be used to expand other R&D investment incentives.
Minimum Tax on Book Income – The plan includes a proposed 15 percent minimum tax on U.S. corporations' book income, which would apply only "to the very largest corporations," according to the Fact Sheet.
Tax Preferences for Fossil Fuels – Biden's plan would eliminate all subsidies, loopholes, and special foreign tax credits for the fossil fuel industry.
Enforcement – The plan calls for increased investment in enforcement so that the Internal Revenue Service has the necessary resources to effectively enforce the tax laws.
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This article originally appeared in BDO USA, LLP's Insights/Tax/Federal Tax - April 2021. Copywrite 2021 BDO USA, LLP. All rights reserved. www.bdo.com.
