Biden unveils infrastructure plan with corporate tax proposals

On March 31, 2021, President Biden unveiled the outline of his infrastructure proposal, the American Jobs Plan. Alongside the infrastructure plan, the President released the Made in America Tax Plan (the Plan), which is designed to fund approximately $2 trillion in infrastructure spending over the next 15 years, by making numerous corporate tax law changes. These changes would generally modify provisions enacted as part of the Tax Cuts and Jobs Act (TCJA). In addition to deriving funding from corporate tax increases, the Plan calls for extensions and enhancements of clean energy and carbon capture tax credits.

No individual tax provisions were included the tax plan. However, the administration has alluded to the inclusion of individual tax rate increases in additional proposals it will be putting forth in the coming weeks, which will target the highest earning individuals.

Prospects for passage

While the concept of infrastructure spending generally enjoys bipartisan support, the cost of the investments as well as rollback of several TCJA provisions, may result in a lack of Republican backing. In the Senate, 60 votes will be needed for passage unless the budget reconciliation process is utilized. Budget reconciliation has already been used for the current fiscal year in order to pass the recent stimulus legislation. Therefore, absent a change in Senate procedures, the budget reconciliation process will have to wait for the next federal fiscal year which begins Oct. 1, 2021.

Consequently, we expect many weeks and months of debate on this package, along with the introduction of counter proposals before any changes may be enacted – if income tax changes can get through Congress at all. The following is a list of the key corporate tax proposals included in the White House’s fact sheet.

Key proposals

• Increase the corporate income tax rate to 28% from 21%.
• Enact a minimum tax based on large corporations’ book income. The proposal does not define “large corporations” for this purpose.
• Increase the tax rate on global intangible low-based income (GILTI) to 21%. It would also modify the computation to be performed on a country-by-country basis, in order to target profits in “tax havens.”
• Implement “anti-inversion provisions” to prevent U.S. companies from becoming “domiciled” in a foreign country, while management and operations continue in the U.S.
• Eliminate the deduction for foreign derived intangible income (FDII).
• Eliminate tax preferences the administration says favors fossil fuels. The Plan does not specify the preferences they plan to target. The Plan would also restore payment provisions requiring polluters to contribute to the Superfund Trust Fund.
• Deny expense deductions for companies offshoring jobs and provide a tax credit to incentivize repatriating work.
• Enhanced funding for the IRS to target corporate tax compliance.

Please reach out to your Baker Tilly tax advisor to discuss how the above may affect your tax situation.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.