The Biden administration on Wednesday unveiled details of a plan to raise corporate taxes and discourage U.S. multinationals from shifting investments and profits overseas to reduce their tax burden.
The “Made in America tax plan,” which would require passage by Congress, broadens Treasury Secretary Janet Yellen’s call this week for a global minimum tax to prevent countries from lowering their tax rates to attract taxpayers. Multi-national companies.
“When other countries see us lowering our rate, they lower theirs to underestimate us,” Yellen said Wednesday. “The result is just a global race to the bottom.”
Corporate tax revenues in the United States are at historically low levels and well below what other countries are collecting, according to the Treasury.
Last week, President Joe Biden announced a $ 2.2 trillion proposal to upgrade the country’s roads, bridges, broadband, and clean energy infrastructure. He said he wanted to pay for most of the radical overhaul by raising the corporate tax rate from 21% to 28% and encouraging other countries to adopt a global minimum tax.
In 2017, President Donald Trump led a tax change that lowered the corporate rate from 35% to 21% and tried to discourage companies from keeping profits offshore to avoid U.S. taxes. The legislation has had the opposite effect, Biden’s Treasury Department argued, because it exempts the top 10% of returns on foreign assets from U.S. taxes – a high level – and taxes profits above it.
Treasury officials said Trump-led tax changes prompted large corporations to move their operations overseas. Many use tax credits in high tax jurisdictions to shift their profits to tax havens, resulting in an overall tax burden about half that of domestic businesses, according to the Treasury. As a result, profits continue to flow to tax havens such as Bermuda, officials said.
“Despite attempts to curb profit shifting, tax havens are as available today as they were before the 2017 tax reform,” says a Treasury report.
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Among other things, the corporate tax proposal:
► End the tax exemption for the first 10% of return on foreign assets and the ability of companies to protect their income from US taxes in foreign havens with taxes paid to higher tax countries. Instead, minimum taxes would be calculated by country. The plan would generate more than $ 500 million in revenue over a decade, according to estimates from the Treasury and the Joint Committee on Taxation.
► Encourage nations to adhere to a global agreement that promulgates a global minimum tax by denying US tax deductions to foreign companies based in countries that do not adopt a strong minimum tax.
► Enact a minimum tax of 15% on the accounting income of large companies that report high profits but have little taxable income.
► Replace subsidies for the production of fossil fuels with fiscal incentives for green energy, encouraging the adoption of electric vehicles and supporting energy sources such as wind and solar.
► Offer stronger tax incentives for research and development.
► Strengthen law enforcement to reduce corporate tax evasion.
“It changes the game we play,” Yellen said of the plan.