A change in power signals an important shift in the outlook for tax policy and planning in the United States. Biden ran on an aggressive tax platform that would reverse many of the recent tax changes, but the failure of Democrats to make more sweeping gains in Congress blunts the potential for many of Biden’s more transformational tax proposals.
Grant Thornton’s National Tax Office in Washington DC has prepared an insightful guide into the US tax policy and planning issues you should consider if you invest or do business in the USA.
Of the 14 platforms Biden ran on, the following may be of most interest to companies with an interest in the United States
1. Corporate tax rate
Biden has proposed a corporate rate of 28%, significantly higher than the current corporate rate, but well below the former 35% rate that many other Democratic presidential candidates championed. Biden has made raising the corporate rate a major campaign focus, and but Senate Republicans are likely to resist any increases.
Biden's proposed top tax rates versus current rates
|Top individual rate||37%||39.6%|
|Top effective rate on pass-through income-eligible for Section 199A||29.6%||39.6%|
|Top rate on long term capital gains||20%||39.6%|
*Does not include net investment income tax or any state and local tax
2. Minimum tax on book income
Biden has proposed a 15% minimum tax on corporate book income “so that no corporation gets away with paying no taxes.” There are no details available on this proposal as yet.
3. Onshoring initiative
Biden has made “onshoring” production a major campaign issue, using tax proposals as a major aspect of a carrot-and-stick approach. To incentivise onshoring, he has proposed 10% advanceable credit for companies that make investments to:
- Revitalise manufacturing plants that have closed or are on the verge of closing
- Retool facilities to “advance manufacturing competitiveness and employment”
- Re-shore production or service jobs, including shipping, moving and training costs
- Increase overall manufacturing wages in the United States above a company’s pre-COVID baseline up to $100,000.
4. Other international changes
Biden has proposed reforming GILTI significantly. He has discussed raising the effective rate to 21% and applying it separately to each country. It is not entirely clear how else he envisions reforming the operational rules, and how this might affect the proposed rate. Much of the language surrounding this proposal appears to contemplate expanding the scope of GILTI so that it operates more like a true global minimum tax. In addition, the 21% proposed rate appears to derive from the idea of repealing the current GILTI deduction.
Under current corporate rates, this would result in a 21% effective GILTI rate. Under Biden’s proposed 28% corporate rate, the effective GILTI rate would be 28% without a deduction. Given his repeated use of the 21% rate in his material, he may be considering a mechanism to limit the GILTI rate to 21% even with a 28% corporate rate.
5. Employee benefits
Biden’s plan pairs two tax priorities aimed at workers with corresponding business incentives. To encourage retirement savings, Biden is proposing tax credits for small businesses that would offset “much of the costs” of implementing workplace savings plan. He has also proposed a childcare construction tax credit to encourage businesses to provide employer childcare facilities. The credit would be worth half of the first $1 million in construction costs per facility.