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Biden’s plan to overhaul tax code would close offshore tax loopholes

President Joe Biden’s tax plan would raise the corporate tax rate to raise $ 2.5 trillion over 15 years to fund the massive $ 2 trillion infrastructure proposal unveiled last week, according to details released Wednesday by the Treasury Department.

By all means ambitious in scope, the Made in America tax plan would increase the corporate tax rate from 21% to 28%, establish a sort of alternative minimum tax for high-income companies and attempt to close loopholes. around the relocation of profits.

The plan would capture $ 2 trillion that would otherwise “roll out of the country,” according to a Wall Street Journal editorial written by Treasury Secretary Janet Yellen.

Voters are clearly in favor of the behemoths of retail, tech, manufacturing and finance paying more taxes.

In a speech on Wednesday, Biden said his tax plan would be fairer to middle-class Americans – a message likely to resonate with the electorate. Voters are clearly in favor of the behemoths of retail, tech, manufacturing and finance paying more. A recent survey by data firm Morning Consult found that about 60% of American adults think businesses should pay more taxes – and half of them say they “totally agree With higher corporate taxes.

At 28%, the corporate tax rate in the United States would be higher than the average statutory tax rate of 23.51% among Organization for Economic Co-operation and Development countries. State taxes could push the effective rate even higher, some political experts have said.

“Raising the rate to 28 percent, combined with state corporate taxes, would bring the combined US rate to 32.34 percent, which would be the highest among OECD and G-7 countries.” said Ben Koltun, research director at Beacon Policy Advisors.

Advocates who want to see the Tax Cuts and Jobs Act fully or partially canceled, however, argue that these percentages are moot because even after the Tax Cuts and Jobs Act lowered the tax out of companies at 21% in 2017, many companies pay much less than that – if they pay anything. The share of taxes that U.S.-based multinationals pay on their domestic profits is less than 8%, according to the Treasury Department.

But that doesn’t mean big companies would pay that amount.

“Now the effective tax rate will be lower for a lot of these companies because of the deductions they can take,” Koltun added.

Eric Toder, institute fellow at the Urban-Brookings Tax Policy Center, suggested that the current corporate tax structure could be improved.

“My view – shared by many tax experts – has always been that it is better for the government to define the measure of taxable income it deems appropriate rather than relying on accounting rules developed for a different purpose. “, did he declare.

Some political observers suspect the administration never predicted 28 percent to be the final figure anyway, noting that Biden said “I’m ready to negotiate this” on the percentage.

Critical Senate vote Joe Manchin, DW.Va., said he did not want the corporate tax rate increased to more than 25%, and Republicans were united in their opposition.

“[This is] leading us to believe that the final plan may be very different from the actual one, ”said Eric Diton, President and CEO of The Wealth Alliance.

According to a recent report from the Institute of Taxation and Economic Policy, at least 55 of America’s largest corporations paid zero federal taxes for 2020, despite collective pre-tax income of $ 40.5 billion. To address these types of discrepancies, the president’s plan would impose a minimum tax of 15% on companies with income over $ 2 billion and what the Treasury called “large discrepancies in income reported to shareholders. and those reported to the IRS ”. This minimum tax would affect, estimates the agency, less than four dozen companies.

This is a considerably more pro-business position than the version proposed by Biden during the election campaign, which would have set the minimum tax threshold at $ 100 million instead of $ 2 billion.

Even with this top tier, the Treasury report argues that the tax plan “redirects corporate tax revenues toward historical and international standards.” Supporters of the Jobs and Tax Cuts Act, which cut the corporate tax rate from 35% to 21% in 2017, argue that putting more into federal coffers robs businesses of money that they would otherwise spend on capital investments, wage gains and other activities that facilitate economic expansion. But numerous analyzes carried out over the following years showed that investments after tax cuts fell short of expectations.

Capturing revenue that companies have been able to keep out of reach is a key tenet of President Joe Biden’s promise to look after the middle class.

Instead, share buybacks have skyrocketed, dividends have risen, and corporate profits have hit record highs. While this is good news for shareholders, growing concerns have been expressed among policymakers and even business leaders about the detrimental effects of widening income inequalities caused, in part, by these changes.

Supporters of the 2017 tax overhaul said lowering the US tax rate to 21% would encourage US companies to shift their profits overseas, but that did not solve the fundamental problem, Bill said. Smith, general manager of the national tax office of CBIZ MHM.

“There have been many attempts to get repatriation… in the Tax Cuts and Jobs Act, but we haven’t really changed the underlying efficiency of keeping the money in. foreigner, ”he said.

The Treasury report also said that foreign investors had enjoyed much of the benefits of the corporate tax cuts under the Tax Cuts and Jobs Act, due to the popularity of U.S. stocks. in the whole world.

A bigger problem than the foreign issue versus the domestic issue, Smith said, is that much of the benefit has gone to investors first, rather than salaried workers.

“Ma and Pa don’t have a million dollars in the market,” he says.

Even with the much narrower scope of minimum tax requirements and a willingness to haggle the 28% rate, this focus on capturing revenue that companies have been able to keep out of tax reach by exploiting loopholes is a key tenet of the tax system. Biden’s promise of attention to the middle class.

“He’s crossing over to not let the big companies get away with it,” Smith said.

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