Biden’s Corporate Tax Proposal Could Raise Trillions
Let the haggling begin
The Biden administration has unveiled its corporate tax overhaul, intended to raise $2.5 trillion over 15 years to pay for an infrastructure program. “Debate is welcome. Compromise is inevitable. Changes are certain,” President Biden said, but he stressed that “inaction is not an option.”
“America’s corporate tax system has long been broken,” the Treasury secretary Janet Yellen wrote in a Wall Street Journal op-ed coinciding with the plan’s release. In addition to raising the headline corporate tax rate, the administration’s proposal takes aim at companies that shift profits abroad, especially to low-tax havens like Bermuda or Ireland. Some of the changes could be enacted by regulation, but things like raising the corporate tax rate will need the approval of Congress.
What’s in the plan? Here are the main provisions:
Raise the corporate tax rate to 28 percent. The increase from 21 percent would put the U.S. more in line with other big countries and, the administration says, lift corporate tax receipts that have fallen to their lowest levels as a share of the economy since World War II.
Ensure big companies pay at least 15 percent in taxes. A minimum tax on book income for companies with annual profits of $2 billion or more would mean firms that use deductions, exemptions and other methods to reduce their liability wouldn’t be able to go lower than a certain level. If this had been in place in recent years, 45 companies would have faced the tax.
Strengthen the global minimum tax to end profit shifting. This would double the rate on foreign intangible assets introduced by the Trump administration in 2017. The Biden administration also says it will push for global agreement on common rates, to discourage companies from shopping around for tax jurisdictions. Finance ministers from the Group of 20 nations said yesterday that they hoped to agree on a global minimum tax rate by midyear, but previous efforts have faltered when it came to nailing down the details.
Punish companies that headquarter in low-tax countries. A provision in the plan would target “inversions,” where American companies merge with a foreign entity in order to move headquarters to a low-tax country.
Replace fossil-fuel tax subsidies with clean-energy incentives. Previous attempts to eliminate subsidies on oil and gas met with stiff industry and congressional opposition.
Beef up the I.R.S. The agency’s enforcement budget has fallen by 25 percent over the past decade, and the proposal would bolster the budget for experts in complex corporate litigation.
What effect would it have? A Wharton School budget model concluded that the corporate tax rate increase would “not meaningfully affect the normal return on investment,” but when combined with the proposed minimum tax on book income, business investment would fall somewhat. All told, by 2050 the tax provisions would reduce government debt by more than 11 percent from the current…