By Tom Ozimek
The Treasury has released a detailed report on President Joe Biden’s “Made in America Tax Plan,” which has the administration putting corporate America on the hook for the tab for the sweeping $2.25 trillion infrastructure package, through measures that include reducing opportunities—such as investing offshore and shifting profits—for corporations to pay lower taxes.
The report summary (pdf) says that the aim of Biden’s tax plan “is to make American companies and workers more competitive by eliminating incentives to offshore investment, substantially reducing profit shifting, countering tax competition on corporate rates, and providing tax preferences for clean energy production.”
The plan has seven main pillars: raising the U.S. corporate tax rate, increasing the global minimum tax for American multinational corporations, disincentivizing foreign jurisdictions from maintaining low corporate tax rates, enacting a 15 percent minimum tax on book income of large companies, incentivizing new research and development, replacing fossil fuel subsidies with incentives for clean energy production, and ramping up enforcement to crack down on corporate tax avoidance.
Treasury Secretary Janet Yellen said Wednesday that the plan would produce roughly $2.5 trillion in revenues over 15 years, enough to cover the eight years’ worth of investments that have been proposed under Biden’s American Jobs Plan, the “infrastructure” package that Republicans argue is a misnomer as it includes hundreds of billions of dollars for climate change and social initiatives.
One pillar of Biden’s tax plan is to raise the corporate tax rate to 28 percent, a proposal that has already seen pushback from Sen. Joe Manchin (D-W.Va.), who said that’s too high and could hurt American competitiveness. Manchin, who holds a key swing vote in the split Senate, has suggested a more modest corporate tax hike of 25 percent.
“If I don’t vote to get on it, then it’s not going anywhere, so we’re going to have some leverage here,” Manchin said on Monday. “It’s more than just me. There’s six or seven other Democrats who feel very strongly about this. We have to be competitive, and we’re not going to throw caution to the wind.”
The tax plan also seeks to double the global minimum tax on U.S. companies under the Global Intangible Low-Taxed Income (GILTI) system to 21 percent from the current 10.5 percent. Concurrently, it would repeal an associated Foreign Derived Intangible Income (FDII) regime, which the report says creates incentives to locate economic activity abroad.
“Coupled with the current GILTI regime, this creates an incentive for companies to offshore plant and equipment, since moving tangible assets offshore both increases the tax-free return under GILTI and increases the tax deduction under FDII,” the report says.
The plan would also repeal the Base Erosion and Anti-Abuse Tax (BEAT) and replace it with a new framework called SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments), in a bid to counter the profit shifting of foreign-headquartered multinational companies.
All told, the proposals to amend or repeal the thee international tax regimes that impact American corporations with a global scope of operations “would bring well over $2 trillion in profits over the next decade back into the U.S. corporate tax base,” the report says.
Another measure meant to limit opportunities for corporations to shift profits and eliminate incentives to offshore investment is to enact country-by-country minimum tax aims by calculating the GILTI minimum tax on a per-country basis, “ending the ability of multinationals to shield income in tax havens from U.S. taxes with taxes paid to higher tax countries.”
Eliminating profit shifting opportunities under Biden’s tax plan is poised to most encumber multinational companies whose business models are highly reliant on intellectual property rights—such as tech or pharmaceuticals—less so corporations heavily invested in tangible assets, such as retail or agriculture, experts told Bloomberg.
Some, like pharmaceutical giant Merck, have already voiced their opposition, telling Bloomberg in a statement that “these proposed tax increases would undermine the biopharmaceutical sector’s ability to do its important work when the world needs it most.”
The proposal has also drawn criticism from business groups such as the U.S. Chamber of Commerce and the Business Roundtable, which argue that higher taxes would hurt U.S. companies operating worldwide and the wider economy.
While the “Made In America” tax plan does not specify which tax breaks for fossil fuel companies would be targeted, the Treasury report estimated that eliminating the subsidies for fossil fuel companies would boost government tax receipts by more than $35 billion in the coming decade, noting that “main impact would be on oil and gas company profits.”
The report cited research suggesting “little impact on gasoline or energy prices for U.S. consumers and little impact on our energy security.”
The plan would also advance clean electricity production by providing a 10-year extension of the production tax credit and investment tax credit for clean energy generation, such as wind and solar power, and energy storage such as advanced batteries. It also creates a tax incentive for long-distance transmission lines to ease the movement of electricity from clean energy generators.
The plan would restore a tax on polluters to pay for Environmental Protection Agency costs associated with Superfund toxic waste sites.
The Treasury report also confirmed that the Biden plan includes a blender’s tax credit for sustainable aviation fuel, a top priority of U.S. airlines, which the report said would enable “the decarbonization of a key portion of the U.S. transportation sector.”
The plan also “proposes incentives to encourage people to switch to electric vehicles and efficient electric appliances.”
The Treasury report has not specified how it would revise or expand existing credits.
Reuters contributed to this report.