How the Made in America Tax Plan Could Impact Employers
The White House recently announced two major policy proposals that have the potential to completely restructure key components of the U.S. economy. The first, known as the American Jobs Plan, seeks to rebuild and preserve the country’s infrastructure and energy grid. The second, known as the Made in America Tax Plan, is designed to adjust the corporate tax code to help pay for the American Jobs Plan and incentivize job creation in the United States.
Find out what you need to know about the new tax policy proposal.
Background: What is the Made in America Tax Plan?
The Made in America Tax Plan is a new policy proposal that was issued by the Biden administration on March 31, 2021. According to a fact sheet issued by The White House, the proposed reform will change the corporate tax code to spur American job growth and investment in the U.S.
A recent report from the Institute of Taxation and Economic Policy (ITEP) found that 91 Fortune 500 companies didn’t pay federal taxes in 2018. The Made in America Tax Plan aims to make changes that ensure corporations don’t use other countries as tax havens, among other adjustments.
With that in mind, corporate taxation is a major political issue that often inspires partisan rhetoric from both sides of the aisle. The Biden administration will likely see pushback from both Republicans and more moderate Democrats.
What Proposals Are Included in the Made in America Tax Plan?
The Biden administration anticipates the Made in America Tax Plan will generate more than $2 trillion in tax revenues over the next 15 years. It also estimates that the tax funds raised will pay for the provisions and policies included in the American Jobs Plan.
The most notable proposed tax changes include:
- Increase the Corporate Tax Rate: The plan proposes to increase the federal corporate tax rate to 28%, which is 7% higher than the current rate of 21%.
- Adjust the Global Minimum Tax for U.S. Multinational Corporations: This proposal seeks to discourage companies from offshoring, or moving profits and jobs overseas. The minimum tax rate for these organizations would be raised from 10.5% to 21% and would be calculated on a country-by-country basis to more effectively target tax havens. According to attorney Pallav Raghuvanshi from Greenberg Traurig, LLP, it will also “eliminate the exemption of up to 10% return on depreciable tangible investments made offshore” using the global intangible low-taxed income (GILTI) calculation.
- Enhance Difficulty for Corporate Inversion: Currently, when U.S. companies buy or merge with a foreign company, they can avoid paying certain American taxes despite maintaining management and operations stateside—otherwise known as a corporate inversion or tax inversion. The proposal promises to make this process more difficult for organizations by denying these companies the ability to write off expenses that are tied to offshoring labor, eliminating an intellectual property loophole that encourages offshoring, and implementing other measures.
- Enact a Minimum Tax on Book Income: For certain large corporations, the plan would implement a 15% minimum tax on “book income,” which is the income companies use to report profits to investors.
- Eliminate Tax Preferences for the Fossil Fuel Industry: The White House wants to eliminate certain tax credits and subsidies available to the fossil fuel industry. If passed, the plan would also restore the rule that polluters must pay into the Superfund Special Accounts to cover the cost of cleanups in contaminated areas.
- Investment in the IRS to Enforce the Tax Code Changes: The plan proposes to ensure that the IRS has the resources, funding, and personnel needed to properly enforce the potential changes to the tax code.
What Else Should Employers Know About the Made in America Tax Plan?
It’s very possible that the Made in America Tax Plan won’t impact many small and mid-sized organizations. However, if passed by Congress and signed into law, the plan would be used to fund the American Jobs Plan, which will almost certainly change how many U.S. employers do business in some form or another.
With this in mind, it’s far too early in the legislative process for HR teams and organizations to do much about the proposed policies included in the Made in America Tax Plan. Still, employers should stay on top of the latest updates as the proposal is refined. If passed, the federal government would overhaul the tax system in a way that could improve infrastructure, add jobs into the marketplace, and more.
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