Corporate tax cut party president Donald Trump will soon be over if his successor is able to come up with proposals to reverse half of the 2017 domestic income tax cut and radically renew levies on overseas profits.
President Joe Biden’s $ 2.25 trillion infrastructure-centric plan, dreamed up Wednesday by the White House, relies on higher corporate dues to pay it. The proposals would change tax breaks, which were at the heart of the Tax Cut and Employment Act of 2017, which was passed with only Republican votes. Coupled with the increase in the corporate tax rate from 21% to 28%, companies would pay significantly more for their global profits than they did before Trump took office, experts said.
“They’re not just resetting the 2017 tax cuts,” said David Noren, former legal advisor to the Joint Tax Committee of Congress, who now advises corporate clients on tax planning. “They’re putting companies in a much tougher place than they were before TCJA.”
The government is also proposing to remove all fossil fuel tax breaks and remove incentives for relocating assets and jobs overseas.
The plan would largely overhaul the complicated matrix of carrot-and-stick incentives introduced in 2018 that govern how U.S. companies pay taxes on foreign profits. Critics said this did little to stimulate US investment or prevent companies from moving income and assets overseas. In his place, Biden has proposed a global minimum tax of 21%. That would be an increase from the current roughly 13% that companies currently owe for offshore profits.
Trump’s tax law was designed to make it easier for American companies to compete with foreign competitors in countries where taxes were lower and international tax systems more permissive.
While the law lowered the tax burden on some overseas profits, other changes – like deductions in favor of U.S. manufacturers selling overseas and rules preventing companies from moving intellectual property overseas – didn’t work as well as some Republicans who did had drafted the law.
Businesses ended up repatriating only a fraction of the foreign profits envisaged by the reform, and uncertainty about the longevity of a law passed with GOP votes has only led some businesses to wait.
In view of the 50:50 split in the Senate and the narrow majority of Democrats in the House of Representatives, Biden’s proposals face significant changes that give individual legislators additional powers to shape the final legislation.
Senate Finance Committee Chairman Ron Wyden said he and Biden are “rowing in the same direction” but that he plans to join Democratic Senators Sherrod Brown of Ohio and Mark Warner of Virginia on his own international tax plan next week publish.
“Although the proposals are different, our plans share the same goals: to incentivize job relocation to end overseas and to reward companies that invest in the US and its workers,” Wyden said in a statement on Wednesday.
Republicans have defended the 2017 tax bill, saying it reformed an archaic international tax system that made American companies primary targets for acquisitions and inversions.
An increase in the federal corporate income rate to 28% would raise the average combined state and federal tax rate to 32.34%, which, according to the right-wing tax foundation, would be the highest among the G7 countries. Republicans say this will hurt economic growth and increase investment costs in the country.
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