Made in America Tax PlanApril 9, 2021
On March 31, 2021, the White House released a fact sheet describing the “American Jobs Plan,” a $2.3 trillion proposal for infrastructure spending that also contains the Made in America Tax Plan (MATP), a tax proposal that would generate revenue to pay for the American Jobs Plan spending. Below is a summary of the proposed changes to the tax code that are found in the MATP.
Setting the Corporate Tax Rate to 28%
- The MATP would increase the corporate tax rate from 21% to 28%.
- The MATP adopts a framework based on two propositions:
- Multinationals must pay their “fair share” of taxes; and
- The tax code should reward companies that invest in the US and create good-paying jobs.
- Proponents of the cut counter that corporate rate increases will be borne by American workers through reduced wages and lower retirement account values. (The nonpartisan Joint Committee on Taxation estimates that 25% of corporate income tax is borne by workers.)
Discouraging Offshoring by Strengthening the Global Minimum Tax for U.S. Multinational Corporations
- The MATP would increase the minimum Global Intangible Low-Taxed Income (GILTI) tax on U. S. corporations from 10.5% to 21% and calculate it on a country-by-country basis. (GILTI is income earned by foreign affiliates of U. S. companies from intangible assets such as patents, trademarks, and copyrights in locations with low tax rates.)
- It would also eliminate the Tax Cuts and Jobs Act (TCJA) rule that allows U. S. companies to pay zero taxes on the first 10% return on foreign investments.
Encouraging Other Countries to Adopt Strong Minimum Taxes on Corporations
- The MATP, with support from Treasury Secretary Yellen, proposes to encourage other countries to adopt strong minimum taxes on corporations, so that foreign corporations aren't advantaged and foreign countries can't try to get a competitive edge by serving as tax havens.
- The MATP would also deny deductions to foreign corporations on payments that could allow them to strip profits out of the US if such corporations are based in a country that does not adopt a strong minimum tax.
- The MATP further replaces the TCJA’s Base Erosion Alternative Minimum Tax (BEAT), which is a minimum tax imposed on corporations that make certain deductible payments to foreign-related parties.
Preventing U. S. Corporations from Inverting or Claiming Tax Havens as Their Residence
- Under current law, U. S. corporations can acquire or merge with a foreign company ("inversion") to avoid U. S. taxes by claiming to be a foreign company, even though their management and operations are in the US.
- The MATP would make it harder for U. S. corporations to invert.
Denying Companies Expense Deductions for Offshoring Jobs, and Providing a Tax Credit for Onshoring
- GILTI and Foreign-Derived Intangible Income (FDII) are contributing factors to moving jobs and equipment offshore, giving companies tax incentives for taking steps that hurt domestic jobs.
- The MATP would eliminate deductions for expenses that come from offshoring jobs.
- Instead, the MATP proposes to provide a tax credit to support onshoring jobs.
Eliminating a Loophole for Intellectual Property that Encourages Offshoring Jobs, and Using the Revenue to Invest in Effective R&D Incentives
- The MATP would eliminate the FDII deduction that was put in place by the TCJA.
- Revenue from repealing the FDII deduction would be used to expand more effective research and development investment incentives.
Enacting a Minimum Tax on Large Corporations' Book Income
- The MATP would impose a 15% minimum tax on book income (which corporations use to report their profits to investors).
- The TCJA had repealed the alternative minimum tax for corporations.
Eliminating Tax Preferences for Fossil Fuels
- Current tax incentives that encourage domestic energy production from fossil fuels include the expensing of exploration, development, and intangible drilling costs; the use of percentage depletion instead of cost depletion to recover drilling and development costs of oil and gas wells and coal mines; and numerous smaller incentives for production and distribution of oil, coal, and natural gas.
- It appears that the MATP would eliminate the expensing of exploration and development costs, excess of percentage depletion, specialty publicly traded partnerships, amortization of geological expenditures associated with oil and gas exploration, accelerated depreciation of natural gas infrastructure, investment credits for clean coal facilities, and energy production credits for coal in their entirety.
- The President is also proposing to restore payments from culpable parties into the Superfund Trust Fund so that those parties help fairly cover the cost of cleanups.
Ramping up Enforcement Against Corporations
- The MATP would ensure that the IRS has the resources it needs to effectively enforce the tax laws against corporations.
- This will be paired with a broader enforcement initiative to be announced in the coming weeks, that will address tax evasion among corporations and high-income Americans.
A full version of the MATP can be found at the end of the fact sheet. The changes to the tax code found in the MATP are only proposed and might either be enacted in a different form or not be enacted at all.
Our attorneys are closely monitoring these developments as they occur. If you have any questions concerning the MATP or how it might affect your business, please contact the author or any other attorney in our Corporate or Tax Department.