But the recession triggered by the coronavirus pandemic has hit these workers hard and made their futures more uncertain. Now, as they try to recover, President Biden is actively pursuing a tax change that would stifle the success of US businesses, lower wages and lead to less well-paying jobs in the Northeast.
Biden's proposal calls for the GILTI to be doubled. This law is a complex, fractured tax that US multinational corporations pay on what they sell overseas. The Republicans' intent in founding GILTI was to prevent companies from moving their intellectual property overseas, avoid taxes, and anchor jobs in the United States.
While the broader Tax Cuts and Jobs Act of 2017 managed to stop these practices – known as inversions – by increasing the competitiveness of the United States, GILTI has further complicated tax laws and many of their effective tax rates for companies with a global business model well set above the current corporate rate of 21 percent. Biden has proposed doubling Trump's GILTI tax to increase revenue and keep more jobs domestically, but if successful, he would only raise tax rates on U.S. brands paying that tax – not our overseas competitors .
Worse, the effects of doubling the federal GILTI rate would be compounded by many state tax laws across the country that automatically follow that law. This would result in automatic tax increases in dozens of states – including businesses in Maine, Massachusetts, New York, Rhode Island, Vermont, and more across the Northeast.
In other words, Biden's proposal would make Texas or Nevada more attractive than Delaware or New Hampshire to do business, and more attractive to be headquartered in Ireland than anywhere in the States.
There are ways to finance infrastructure without affecting American competitiveness or harming US workers. User fees like a gas tax, while offensive to some in Washington, are a proven way to fund large projects while those who would benefit most from these plans would join the action. Alternatives like a carbon tax could also help the president meet environmental and revenue targets without hampering Northeastern companies' ability to sell overseas, expand their operations, and invest in their people.
If it comes down to it, many of these Democratic senators voted against the GILTI tax when it was passed as part of the 2017 tax reform – and there's no good reason to double it now.
Scott A. Hodge is President of the Tax Foundation, a nonprofit research organization based in Washington, D.C. Daniel Bunn is Vice President for Global Projects at the Tax Foundation.