Biden Plans to End Corporate Tax Cuts Benefiting Investors
Several of former President Trump’s corporate tax cuts may be coming to an end if President Biden proves that he can roll back the 2017 proposal on domestic income-tax reductions as well as radically overhaul levies on profits that are earned abroad. His $2.25 trillion plan, based on infrastructure, relies on high corporate levies to pay for it. This proposal will change the tax benefits that were the core of the 2017 Tax Cuts and Jobs Act, which passed solely with Republican votes. Biden plans to increase the corporate income tax rate from 21% to 28% as well as have businesses pay more on global earnings. The administration proposes to eliminate fossil-fuel tax breaks and repeal incentives to move assets and jobs offshore.
Biden’s plan will update the matrix of carrot-and-stick incentives that were put in place in 2018. These incentives determine how many U.S. companies currently pay taxes on their foreign profits. Biden proposes a 21% global minimum tax on foreign profits to help keep income and assets local. This would be an estimated increase of 13% from what corporations currently owe on offshore earnings.
While Trump’s tax law was supposed to allow American companies to compete with other foreign companies in countries where taxes were lower and international tax regimes were permissive, it has only disappointed those who put it in place. Instead, companies only repatriated a fraction of foreign profits which were envisioned by the reform. Uncertainty about the longevity of this law had led companies to adopt a wait-and-see approach.
Many Republicans have defended Trump’s tax law, saying that by raising the federal corporate tax not only will the US rate be the highest among G-7 countries, but this would also increase the cost of investing in the country, harming the economy.
The National Economic Council Director Brian Deese predicts that Biden’s plan will stop the “race to the bottom” on corporate taxes. He also argues that Biden’s plan will be beneficial to private sector companies.
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