On the heels of the recent American Rescue Plan (ARP) for COVID-19 relief, the Biden administration and Congress are embarking on their next major initiative – infrastructure. Biden introduced the “American Jobs Plan” (AJP) on March 31, 2021, offering a major infrastructure plan that is funded mostly by corporate tax hikes.
While the ARP included some tax provisions, it was not comprehensive. This latest infrastructure plan offers several significant tax increases for businesses with nearly $2 trillion of spending (similar to ARP). However, the AJP covers these costs through major corporate tax increases, unlike the ARP, which had only a few tax offsets. The infrastructure is part of the Administration’s formal introduction of the “Build Back Better” program it initially announced last year. The infrastructure will focus on spending for roads, bridges, energy and more.
Also anticipated are plans for a separate (but related) package that will focus on an “income infrastructure” with additional economic security packages, poverty relief, education programs, etc. This will be rolled out later, likely in late April, and is expected to be financed with higher income and estate taxes for individuals.
Congressional leaders used “budget reconciliation” to muscle through the ARP and may use this same reconciliation route for one of these infrastructure packages. Details and political strategy of these bills are still being formulated.
Some of the tax changes in Biden’s proposal introduced on March 31 include the following corporate tax changes:
- Raise the corporate income tax rate by 33 percent – from 21 to 28 percent.
- Double the global minimum tax (“GILTI”) for U.S. corporations to 21 percent. Calculate this tax on a more restricted country-by-country basis.
- Encourage other countries to strengthen their global minimum taxes, eliminating an incentive for companies to do businesses in lower taxed countries. It is uncertain how this initiative will be implemented.
- Enact new rules to restrict or prevent corporate inversions. Rather than remove the incentive for companies to look at a corporate inversion strategy by keeping the U.S. corporate tax rate, this change would impose penalties on companies that seek inversion strategies due to a higher U.S. corporate tax rate.
- Eliminate the tax deduction for “offshoring jobs;” instead create tax credits for onshoring jobs in the U.S. We are unsure at this time what the specifics of this program would be.
- Remove the foreign-derived intangible income (“FDII”) provisions from the Tax Cuts and Jobs Act (TCJA) – thus causing higher taxes for companies using FDII.
- Impose a new 15 percent corporate minimum tax on a corporation’s “book income.” The corporate minimum tax was repealed by the TCJA but would be reincarnated under this proposal for large corporations. No details were offered on this new tax.
- Repeal many of the tax preferences that exist in the oil and gas industry, leading to higher tax liabilities for impacted businesses.
- Invest in additional enforcement (e.g., tax audits) of corporate tax filings.
This is the first step in the process to pass this proposed legislation. Congress will take up this proposal following its Easter recess with its own ideas in the coming weeks. This package has a long way to go, and nothing is certain at this point. The effective dates of any of these provisions are also unclear. We will keep you posted as this process moves forward. Please contact your Sikich advisor with any questions.