WASHINGTON – Large companies such as Apple and Bristol Myers Squibb have long used complicated maneuvers to reduce or eliminate their tax bills by shifting revenue on paper between countries. The strategy has enriched accountants and shareholders while reducing tax revenues for the federal government.
President Biden considers the termination of the practice central to his $ 20 billion infrastructure package, which the tax code he says will ensure U.S. companies carry tax money to help invest in the country’s roads, bridges, water pipes and other areas of its economic agenda.
The department of treasury on Wednesday released the details of Mr. Biden’s tax plan announced, which aims to raise as much as $ 2.5 billion over 15 years to fund the infrastructure proposal. These include pushing the corporate tax rate from 21 per cent to 28 per cent, imposing a strict new minimum tax on global profits and curbing companies trying to shift profits abroad.
The plan is also aimed at preventing large companies that are profitable but have no federal income tax liability from paying any tax to the treasury department by raising taxes of 15 percent on the profits they report to investors. According to the Biden administration, such a change would affect approximately 45 companies, as it would be limited to companies earning $ 2 billion or more per year.
“Companies will not be able to hide their income in places like the Cayman Islands and Bermuda in tax havens,” he said. Biden said Wednesday during remarks in the White House. He defended the tax increases as needed to pay for infrastructure investments America needs and to help reduce the federal deficit in the long run.
Yet its 15 percent tax is a narrower version of the one he proposed in the 2020 campaign, which would apply to companies with $ 100 million or more in profits per year.
The proposals of mr. Biden is a rejection of Washington’s last major tax recovery – President Donald J. Trump’s tax cuts in 2017. Biden administration officials say legislation has increased incentives for companies to shift profits to lower tax countries, while the company’s tax revenues in the United States are reduced to match their lowest levels as part of the economy since World War II.
Treasury Secretary Janet L. Yellen said during the implementation of the plan that it would end a global “race to the bottom” of corporate taxes that was devastating to the U.S. economy and its workers.
“Our tax revenue is already at its lowest level in generations,” she said. Yellen said. “If they continue to decline, we will have less money to invest in roads, bridges, broadband and O&D.”
The plan, while ambitious, is not easy to execute.
Some of the proposals, such as certain changes to the way a global minimum tax is applied to corporate income, could possibly be introduced by the Treasury Department through regulations. But most will need Congress’ approval, including raising the state tax rate. Given Democrats’ limited majority in the Senate and House, the proposed rate could drop. Senator Joe Manchin III of West Virginia, a major swing vote, has already said he would prefer a 25 percent rate.
Mr. Biden indicated that he was willing to negotiate and said: ‘Debate is welcome. Compromise is inevitable. Changes are for sure. “But he added that ‘unemployment is not an option.’
At the heart of the tax proposal is an attempt to rewrite decades of tax code provisions that have encouraged and rewarded companies investing profits abroad.
This would increase the rate of what is essentially a minimum tax on money earned by US companies abroad, and it would apply to a much wider range of income. It will also eliminate lucrative tax deductions for foreign-owned companies established in low-tax countries – such as Bermuda or Ireland – but operating in the United States.
“We are very explicit: we do not think profit shifting is beneficial from an American perspective,” David Kamin, the deputy director of the National Economic Council, said in an interview. “This is a big problem,” he said, adding that with the proposed changes, “we have the opportunity to lead the world.”
The corporate tax rate in the United States is currently 21 percent, but many large U.S. companies pay effective tax rates that are much lower than that. Companies operating in multiple countries move assets or income – sometimes in physical form, but sometimes only in their bookkeepers – between countries in search of the lowest possible tax bill.
Companies also move jobs and investments between countries, but often for different reasons. In many cases, they follow lower labor costs or seek out customers in new markets to expand their businesses. The Biden plan would create tax incentives for companies to invest in production and research in the United States.
Previous administrations have tried to limit the offshoring of jobs and profits. Mr. Trump’s tax cuts lower the corporate rate to 21 percent from 35 percent in hopes of encouraging more domestic investment. It introduced a global minimum tax for companies in the United States and a related effort to reduce profit shift by foreign companies with operations in the country, although both provisions were weakened by subsequent regulations issued by Trump’s Treasury Department.
Conservative tax experts, including several involved in writing the 2017 law, say they have seen no evidence that the law attracts companies to pull jobs overseas. Mr. Biden has put together a team of tax officials who argue that the provisions have given companies new incentives to shift investments and profits abroad.
The plan of mr. Biden will set the minimum tax rate of Mr. Trump increases and applies it more broadly to revenue earned by U.S. companies abroad. These efforts would try to make it less attractive for companies to record profits in companies with lower taxes.
This includes discouraging US companies from moving their headquarters abroad for tax purposes, especially through the practice known as ‘inversions’, where companies from different countries merge and create a new business abroad.
Under current law, companies headquartered in low-tax countries can move a portion of their profits earned by subsidiaries in the United States and return it to headquarters as payment for things like the use of intellectual property, and then the payments. deduction from their U.S. income. taxation. The Biden plan will not allow the deductions for companies in low-income countries.
Treasury officials estimate that the proposed changes to foreign taxes would yield about $ 700 billion over ten years.
Companies defend their decisions to track profits and operations abroad, saying they do so for a variety of reasons, including allowing them to compete globally.
Business groups exploded the proposal on Wednesday, saying that while they agreed that the United States should invest in infrastructure, the tax plan would pose a significant competitive disadvantage to U.S. businesses.
Neil Bradley, executive vice president and chief business officer of the U.S. Chamber of Commerce, said in a statement Wednesday that the proposal would hurt U.S. businesses and cost U.S. jobs and that it would hamper their ability to compete globally. will hinder. economy.
And members of the Business Roundtable, which represents the top executives in Washington, said this week that Biden’s plan for a global minimum tax ‘threatens to subject the U.S. to a major competitive disadvantage.’
Republican lawmakers have also denounced the plan as bad for the business world, with some in the House Ways and Means Committee saying “their massive tax increases are being covered by U.S. workers and small businesses.”
Yet some companies have expressed openness to certain tax increases.
John Zimmer, the president and founder of Lyft, told CNN on Wednesday that he was considering the proposed 28% tax rate of Mr. Bid support.
“I think it is important to re-invest in the country and the economy,” he said. Zimmer said. “And as the economy grows, so do jobs, and also the needs of people to get around.”
The team of mr. Biden hopes that the proposals will eventually spur a global change in the way and where taxes are taxed, which could solve global competition problems.
The administration supports the effort by the Organization for Economic Co-operation and Development to mediate an agreement on the development of a new global minimum tax. Me. Yellen on Monday gave her support behind the effort and the Biden plan contains measures intended to force other countries to go along with the new tax. Global negotiators aim to reach an agreement by July.