President Biden’s $2.25 Trillion Infrastructure Overhaul and Corporate Tax Proposal
By: Jonathan Wolnik
Following its $1.9T COVID-19 relief bill, the Biden Administration released details of its next spending bill, the “American Jobs Plan”, primarily aimed at funding initiatives in transportation, infrastructure, renewable energy, manufacturing, and the wars on climate change and inequality. The spending bill carries a $2.25T price tag, which is projected to be spent over the next 8 years.
Funding for this bill is targeted to come primarily from tax increases on corporations. The Administration is proposing a corporate income tax increase from the current 21% rate to 28% on corporate domestic earnings, coupled with a minimum tax of 21% on corporate profits earned outside of the U.S. Currently, corporations generally pay approximately 13% income tax on profits earned overseas. President Biden’s new global minimum tax on corporations is a critical revenue component of the proposal, as it is anticipated to prevent corporations from “blending” tax rates paid across foreign jurisdictions, while also disposing of the current rule that allows U.S. corporations to pay zero tax on the first 10% of earnings on investments located in foreign countries. Additionally, for corporations generating revenue greater than $100 million, the American Jobs Plan is anticipated to impose a 15% minimum tax on “book income” instead of “taxable income”.
The American Jobs Plan proposes repealing the Foreign-Derived Intangible Income deduction, which incentivizes corporations to bring their intellectual property into the U.S. President Biden further provides a tax credit for certain types of corporate activities meant to “onshore” work while denying certain other tax credits to corporations that move jobs overseas. The President’s proposal eliminates certain deductions and tax credits available to the fossil fuel industry.
Another significant component of this proposal is a planned strengthening of the IRS. The Biden Administration believes a more aggressive IRS is required to ensure corporate tax compliance, and therefore, President Biden is looking to provide more funding to the IRS while granting broader enforcement initiatives to address tax evasion among corporations and high-net-worth individuals.
The White House is also working on a second spending package, currently estimated at $1T, to be revealed later in April, focusing primarily on social measures, likely to be paid for by tax increases on wealthy individuals. These new plans are not shy about naming the funding sources for the spending bills. Those to be impacted can expect increased scrutiny and regulatory challenges to comply with. Corporations and high-income individuals should be working closely with their financial and legal advisors to monitor the status of these proposals and, if enacted, to plan accordingly. When new laws are passed, there are always planning opportunities and strategies available to ensure the best possible outcomes for our clients.
Jonathan Wolnik is an attorney at the Cleveland, OH-based law firm McCarthy, Lebit, Crystal & Liffman Co., LPA.