WASHINGTON – The Biden government unveiled a tax plan on Wednesday This would raise the corporate tax rate in the US and limit the ability of American companies to avoid taxes by shifting profits overseas.
Much of the plan aims to reverse a profound corporate tax cut under President Donald J. Trump. A 2017 tax bill cut the corporate tax rate from 35 percent to 21 percent and enacted a number of other provisions that, according to the Biden government, have encouraged companies to shift profits to lower-tax countries like Ireland.
Some of the provisions in President Biden's plan can be made by the Treasury Department, but many require Congress approval. Republicans have already classified the proposals as detrimental to the US, while some moderate Democrats have indicated that they may also want some adjustments, particularly the proposed 28 percent corporate tax rate.
Administration officials estimate the proposals will bring a total of $ 2.5 trillion in new tax revenue over 15 years. Analysts on the University of Pennsylvania's Penn Wharton Budget Model have put the estimate even higher, putting a 10-year increase of $ 2.1 trillion, with roughly half the money coming from the various changes to the plan in the taxation of multinational corporations originates.
Below are some of the key provisions included in the plan and how they are designed to work.
Raise the corporate tax rate to 28 percent
The plan aims to increase the corporate tax rate from its current 21 percent to 28 percent, a level that would align it more closely with global competitors. Currently, according to the Organization for Economic Cooperation and Development, the United States has less corporate tax revenue than almost all other advanced economies in relation to economic output.
The government sees the increase in the tax rate as an opportunity to increase corporate tax revenues, which have fallen to the lowest economic share since World War II.
Make sure large companies pay at least 15 percent tax
Many large companies pay far less than the current tax rate of 21 percent – and sometimes nothing. The provisions of tax law allow companies to reduce their liability through deductions, exemptions, offshoring and other mechanisms.
The Biden Plan aims to put an end to large corporations that have no federal tax liability and pay zero or negative taxes to the US government.
The White House wants to impose a minimum tax of 15 percent on so-called "book income" – the profits that companies report to investors, but that are not used to calculate tax liability. Such revenue can make a company appear very profitable and reward shareholders and executives of the company even when the company pays little or no taxes.
"Large companies that show shareholders sky-high profits would have to pay at least a minimum amount of tax on such oversized returns," the finance department said. The administration would require companies with annual income of $ 2 billion or more to pay at least 15 percent of their book income. It has been estimated that 45 companies would have paid such a tax if the proposal had entered into force in recent years.
The proposal is narrowed down from Mr Biden's version proposed in the campaign, which would apply to companies with a book profit of $ 100 million or more per year.
Strengthening the global minimum tax
The plan aims to bolster a global minimum tax imposed on US companies as part of the Trump administration's 2017 tax package by raising the tax rate and removing some exemptions that mitigate their impact.
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The Treasury Department would double the so-called Global Intangible Tax on Low Taxed Income (GILTI) to 21 percent, which would narrow the gap between what companies pay for overseas profits and what they pay for earned income in the US .
And it would calculate GILTI tax on a country basis, which would result in more overseas income being subject to tax than under the current system.
Punish US companies headquartered in low-tax countries
A provision in the plan known as SHIELD is an attempt to discourage American companies from relocating their headquarters overseas for tax purposes, particularly through the practice known as "inversions" of corporations merge different countries and set up a new foreign company.
Under current law, Irish-headquartered companies can "graze" some of the profits made by subsidiaries in the United States and return them to the Irish company as payment for things like the use of intellectual property, and then deduct those payments from their American income tax. The SHIELD plan would prohibit these deductions for companies based in low-tax countries.
Press on a global agreement to end profit shifting
The Biden government wants other countries to raise their corporate tax rates as well.
The tax plan emphasizes that the finance department will continue to push for global coordination of an international tax rate that would apply to multinational companies regardless of where they are headquartered. Such a global tax could help prevent the kind of "race to the bottom" that was underway, Treasury Secretary Janet Yellen said, referring to countries trying to outdo each other by lowering tax rates to help businesses to attract.
Republican critics of the Biden tax plan have argued that the government's focus on a global minimum tax is evidence that a unilateral increase in the US corporate tax rate would make American companies less competitive globally.
Replace fossil fuel tax subsidies with clean energy incentives
The president's plan would strip long-standing subsidies for oil, gas and other fossil fuels and replace them with incentives for clean energy. The regulations are part of Mr. Biden's drive to move the US to "100 percent carbon-free electricity" by 2035.
The plan provides a tax incentive for long-distance transmission lines, would expand incentives for electricity storage projects, and extend other existing clean energy tax credits.
A Treasury Department report estimated that the elimination of subsidies to fossil fuel companies would increase the state's tax revenues by over $ 35 billion over the next decade.
"The main impact would be on the profits of oil and gas companies," the report said. "Research suggests that US consumers have little impact on gasoline or energy prices and little on our energy security."
Abolition of fossil fuel subsidies has been attempted before, with little success either from industry or from the opposition in Congress.
Improve the Internal Revenue Service
The Internal Revenue Service has struggled with budget cuts and scarce resources for years. The Biden government believes that better funding the tax collection company is an investment that more than pays off. The plan, released on Wednesday, includes proposals to strengthen the I.R.S. Budget so it can hire experts to track big companies and make sure they pay what they owe.
The finance department that the I.R.S. Monitored, found in their report that the agency's enforcement budget has fallen by 25 percent over the past decade and that it is ill-equipped to examine complex company filings. The agency also cannot afford to conduct or maintain multi-year litigation over complex tax disputes, the Treasury Department said.
As a result of these restrictions, the I.R.S. usually focuses on smaller destinations while large corporations and the wealthiest taxpayers find ways to lower their tax burdens.