What the Made in America Tax Plan Means for Your Business
Biden Laid the Groundwork for Corporate Tax Increases Designed to Pay for the Plan
During a stop in Pittsburgh on March 31, 2021, President Joe Biden unveiled the massive, $2 trillion American Jobs Plan - aimed at strengthening the post-pandemic economy through federal spending on infrastructure. The wide-reaching plan focuses on highways, electric grids, schools, manufacturing, affordable housing, broadband access, and care for seniors and people with disabilities.
Paying for the Plan
In his remarks, Biden laid the groundwork for corporate tax increases designed to pay for the plan. Biden outlined that the Made in America Tax Plan (Tax Plan) will generate $2 trillion over the course of 15 years, and incentivize job creation and investment in the U.S.
The following are key elements of the Tax Plan:
Corporate Tax Rate at 28%
The Tax Plan would raise the corporate tax rate from 21% to 28%. In his Pittsburgh speech, Biden pointed out that this is still a reduction from the 35% corporate tax rate that existed before the Trump administration tax cuts of 2017.
Tax Rates for Offshore Profits
In an effort to end perceived preferential tax rates for offshore profits, Biden is proposing an increase in the tax rate for active income of controlled foreign corporations (CFCs) known as global intangible low-taxed income (GILTI) from 10.5% to 21%. In addition, these taxes would be calculated on a country-by-country basis to address profits in tax havens. Also, the current exemption of up to 10% return on depreciable tangible investments made offshore would be eliminated.
Large Corporation Minimum Tax
The Tax Plan would impose a 15% minimum tax on the income corporations use to report their profits to investors, known as book income. While the Tax Plan states that this minimum will only apply to the “very largest corporations” - no specific income guidelines are mentioned.
Anti-Inversion
Currently, U.S. corporations can acquire or merge with a foreign entity and avoid U.S. taxes by operating as a foreign company. The Tax Plan includes an anti-inversion measure that would treat foreign corporations as U.S. corporations if their place of management and operations are located in the U.S.
Increased Taxes for Fossil Fuel Industry
All of the current tax code subsidies and tax credits granted to the fossil fuel industry are eliminated under Biden’s plan. He also suggests that industries identified as polluting industries should help cover the cost of environmental cleanups through payments to the Superfund Trust Fund, a trust fund set up by Congress in 1980 to pay for hazardous waste site cleanup.
Funds for Enforcement
To increase tax enforcement, the Tax Plan has earmarked additional funding to the IRS. This will be paired with a broader enforcement initiative that Biden is expected to announce in the coming weeks.
Phase Two
In his Pittsburgh address, Biden emphasized that the American Jobs Plan is the first phase of a broader, two-pronged initiative. Phase Two is called the American Families Plan and will be unveiled later this spring.
It’s likely that we’ll then have a better understanding of Biden’s individual income tax proposal. However, he made one thing clear in his March 31 address when he stated, “I start with one rule. No one – let me say it again – no one making under $400,000 will see their federal taxes go up. Period.”
As a presidential candidate, Biden pinpointed $400,000 as the point where wages would be hit with an additional Social Security tax. His plan as a candidate also included an increase in the top individual tax rate from 37% to 39.6% and an increase in tax on capital gains from 20% to 39.6%.
Congressional Reaction
Joining overwhelming Republican opposition to the Tax Plan, three House Democrats are threatening to vote against any tax increase that doesn’t include a repeal of the state and local tax (SALT) deduction cap. Given the Democrat’s slim 7-vote majority in the House, Biden’s Tax Plan isn’t a done deal.
One key Democrat, West Virginia Senator Joe Manchin, has openly demanded changes to this proposal in order to secure his support. On April 5, Manchin announced, “This bill will not be in the same form as you’ve seen it introduced.”
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To view the complete text of The American Jobs Plan and The Made in America Tax Plan, click here:
