- Treasury Department releases Made in America Tax plan outlining strategy to raise revenues for President Joe Biden’s approximately $2 trillion infrastructure proposal
- Plan calls for measures that include raising the corporate tax rate to 28 percent, creating a 15 percent minimum tax on the “book value” of major companies, and eliminating fossil fuel subsidies
- Changes to the plan are likely as some moderate Democrats show wariness about raising the corporate tax rate higher than 25 percent
Summary by Dirk Langeveld
The Treasury Department has released a “Made in America Tax Plan” calling for an increase in the corporate tax rate alongside other tax revisions to support President Joe Biden’s major infrastructure proposal.
The 19-page plan follows a broad strategy of collecting more money from major corporations, primarily by raising the corporate tax rate to 28 percent. It would also close a variety of loopholes allowing these companies to lower or eliminate their tax liability, including the offshoring of profits.
The plan says the corporate tax rate remained unchanged for several decades until it was lowered from 35 percent to 21 percent under the Tax Cuts and Jobs Act of 2017. The proposal would increase the rate to 28 percent, which the Treasury says is more on par with other advanced economies while remaining below the corporate tax rate of U.S. trading partners.
Another major change would be a minimum tax of 15 percent on a company’s “book value,” or profits reported to investors. This aims to dissuade companies from using credits and deductions to reduce their tax liability, and would only apply to corporations reporting $2 billion or more in income to their shareholders. The Treasury says this rule would currently apply to just 45 companies, with the average company seeing their minimum liability increasing to $300 million a year.
The plan also calls for the elimination of fossil fuel subsidies, which it claims would generate $35 billion in new revenue over the next decade while primarily impacting profits in the oil and gas sector. These would be supplanted by a 10-year extension of production and investment tax credits for clean energy generation and storage, which would help support the Biden administration’s goal of carbon-neutral energy production in the United States by 2035. In addition, the plan would establish several clean energy incentives in areas such as transmission lines, carbon capture and sequestration, sustainable aviation fuel, and electric vehicles.
Other proposals in the plan include a 21 percent minimum tax on the foreign income of U.S. companies and a collaborative effort to establish a global minimum corporate tax rate. The budget of the Internal Revenue Service would be increased to assist with enforcement and oversight of the changes.
The Treasury anticipates that the changes will raise $2.5 trillion over 15 years. The policies would go toward funding Biden’s approximately $2 trillion infrastructure plan, which includes investments in physical infrastructure as well as priorities such as clean energy and the care economy. The Treasury plan argues that the proposal would assist businesses in the long-term by making investments that would support “a strong foundation for longstanding economic prosperity.”
The infrastructure proposal has won considerable support, with two-thirds of voters in a Morning Consult/Politico poll supporting the idea of raising the corporate tax rate to fund improvements. The administration has also found an unlikely ally in Amazon CEO Jeff Bezos, who voiced his support for raising the corporate tax rate to support infrastructure initiatives.
Critics of Biden’s infrastructure proposal say it puts too much money into initiatives that fall outside the realm of traditional upgrades such as road or bridge repairs, and also claim that raising the corporate tax rate will make the U.S. less competitive. Some business groups have also said that the burden of a higher corporate tax rate would primarily fall on smaller companies, with the Small Business & Entrepreneurship Council saying that nearly 85 percent of C corporations have fewer than 20 employees.
The tax proposal could see further revisions before being presented before Congress, as some moderate Democratic lawmakers have voiced their support for limiting a corporate tax rate increase to 25 percent. Biden said Wednesday that he is willing to negotiate a smaller increase.
A smaller increase seems almost guaranteed as Senator Joe Manchin of West Virginia recently said he would not support a 28 percent rate. Given the even split in the Senate, the slim Democratic majority would be unable to pass a higher tax rate by reconciliation if Manchin votes against it.