Tuesday, April 20, 2021
Reuven S. Avi-Yonah (Michigan), The Ingenious Biden Tax Plan, 171 Tax Notes Fed. 235 (Apr. 12, 2021):
On March 31 the White House released an outline of its proposed infrastructure bill, which includes the Made in America Tax Plan. The plan involves a major revamping of the corporate and international tax provisions in the Tax Cuts and Jobs Act, including:
- raising the corporate tax rate from 21 percent to 28 percent;
- eliminating the participation exemption for a 10 percent return on qualified business asset investment;
- reforming the global intangible low-taxed income regime by raising the rate to 21 percent and applying it per country;
- strengthening the anti-inversion rules;
- replacing the base erosion and antiabuse tax with a stronger but conditional denial of deductions to related foreign parties; and
- repealing the foreign-derived intangible income regime and replacing it with increased research and development subsidies for domestic activities.
The plan is a long-overdue recognition that U.S.-based multinationals have not been paying their fair share of taxes, given their levels of profitability, most of which are economic rents not subject to competition because of their monopolistic or oligopolistic positions in their respective markets. Also, the BEAT replacement will be a major incentive for other countries to enact similar legislation under the auspices of pillar 2 of the OECD’s base erosion and profit-shifting initiative due to be completed by June.
The Biden plan is a major step forward in reforming U.S. corporate and international rules to prevent U.S. multinationals from having a competitive advantage over domestic U.S. corporations, as well as a long-overdue stride toward making them pay a fair share of taxes. Given that the resulting revenue will help pay for essential investment in America’s future, the plan should be enacted as soon as possible. We should all hope that the Democrats in Congress can unite in passing it through reconciliation