President Biden Introduces the American Jobs Plan
One week ago, President Biden outlined a massive $2 trillion infrastructure proposal to address some of the issues that his administration consider to be the country’s most pressing problems, including damaged bridges, unequal broadband access, climate change and care for people with disabilities and the elderly.
President Biden’s proposal, the American Jobs Plan, would be paid for, in part, by raising the corporate tax rate and global minimum tax. Some measures would reverse former President Trump administration’s 2017 tax cuts. The Plan includes the following major components:
- Transportation infrastructure, $621 billion, which includes expenditures for
- highways, bridges, and roads,
- public transit and passenger and freight rail,
- electric vehicles, and
- airports and water ports
- Infrastructure at home, $650 billion, which includes expenditures for
- clean drinking water, including replacement of lead pipes,
- universal broadband,
- upgraded and new schools, and
- affordable and sustainable housing
- Research and development, manufacturing and training, $580 billion, which includes expenditures for
- research and development, including a major clean-energy focus,
- semiconductor manufacturing, and
- workforce development
- Caretaking economy, $400 billion, which includes home and community-based care for the elderly and disabled
While the proposed spending would be spread out over eight years, the tax increases would continue for 15 years.
Proposed Tax Measures
The White House released a Fact Sheet that lists the proposed tax measures under the plan:
- Corporate Tax Rate — The Biden plan would increase the corporate tax rate from 21% to 28%. The rate had been reduced by the Trump administration from 35% to the current rate of 21%.
- Global Intangible Low-Taxed Income (GILTI) Modifications – President Biden’s proposal would increase the effective rate on GILTI for U.S. corporations to 21% and calculate GILTI on a country-by-country basis. It also would eliminate the rule that allows U.S. companies to reduce their GILTI inclusion by 10 percent of their average adjusted basis of qualified business asset investments.
- Encourage Other Countries to Adopt a Minimum Tax Regime – The plan proposes to encourage other countries to adopt strong minimum taxes on corporations, and deny deductions to foreign corporations on payments that could allow them to strip profits out of the U.S. if they are based in a country that does not adopt a strong minimum tax.
- Inversions – In addition to enacting reforms that would remove incentives for U.S corporations to invert, President Biden’s proposal would make the inversion process more difficult.
- Offshoring/Onshoring Jobs –President Biden’s reform proposal would deny companies deductions generated by offshoring jobs and would also propose a tax credit to support the onshoring of jobs.
- Eliminate the Foreign Derived Intangible Income (FDII) Deduction and Invest in R&D Incentives – The Biden plan proposes the complete elimination of the FDII deduction, which was introduced as part of the Tax Cuts and Jobs Act. The revenue collected as a result of the repeal of the FDII deduction would be used to expand other R&D investment incentives.
- Minimum Tax on Book Income – The plan includes a proposed 15 percent minimum tax on U.S. corporations’ book income, which would apply only “to the very largest corporations,” according to the Fact Sheet.
- Tax Preferences for Fossil Fuels – Biden’s plan would eliminate all subsidies, loopholes, and special foreign tax credits for the fossil fuel industry.
- Enforcement – The plan calls for increased investment in enforcement so that the Internal Revenue Service has the necessary resources to effectively enforce the tax laws.
Additional information on the Administration’s tax plan accompanying the American Jobs Plan has been released by the Treasury Department in a report that can be accessed at The Made in America Tax Plan.
We will be following developments in Congress and keep you informed. Chances for Republican support took a significant hit when the plan included “infrastructure” beyond the traditional connotation of transportation related items such as roads, bridges, and ports. With the 50-50 split in the Senate, support from all Democrats is necessary if no Republican support surfaces. Already, Sen. Joe Manchin has indicated that he would support a corporate tax rate increase to 25% rather than the 28% proposed in the Plan. This Plan has a long way to go before it gets to any meaningful vote in Congress, although administration officials recently set a Memorial Day time frame for action. We will be watching with great interest.