Biden campaign corporate tax proposals

Presidential candidate Joe Biden recently released a fact sheet outlining his proposals for taxing corporate income. This corporate tax agenda modifies elements of the Tax Cuts and Jobs Act of 2017 (“TCJA”), but also seeks to raise effective rates and to create new incentives for U.S. job creation.

Biden corporate proposals

Biden has proposed raising the corporate tax rate to 28% (exactly mid-way between the post-TCJA 21% rate and the pre-TCJA 35% rate).

The proposal would also modify the TCJA by expanding and increasing the new taxes on foreign earnings enacted in 2017. A fact sheet released by the Biden campaign on September 9 proposed the following:

  • Increase the tax rate on foreign earnings from the current 10.5% (equal to the current statutory rate of 21% minus a 50% deduction available under section 250), to 21%.
  • Modify the tax on global intangible low-taxed income (GILTI) of controlled foreign corporations, so that it applies on a country-by-country basis, rather than the current blended basis.
  • Eliminate the exception for qualified business asset investment (QBAI), which currently provides that a 10% return on the basis of tangible assets owned by CFCs is exempt from GILTI and can be repatriated tax-free due to the 100% dividends received deduction available under section 245A.

One idea that Biden has also floated is a 15% minimum tax on corporate book profits equal to, or in excess of, $1 million.

Mazars’ Insight

Proposals for imposing the GILTI tax on a country-by-country basis and to repeal the QBAI exemption have been made by other Democrats to address base erosion concerns. Removing U.S. taxpayers’ ability to blend the tax rates imposed by foreign jurisdictions for foreign tax credit purposes could increase the overall tax burden on multinationals. 

Offshoring penalties

Biden also proposed both a penalty for offshoring and incentives for onshoring and investment in U.S. manufacturing. The offshoring penalty is a surtax of 10% on profits of any production by a U.S. company overseas for sales back to the United States. The campaign fact sheet says that would result in a tax rate of 30.8% on such profits (equal to the full 28% statutory rate on U.S. earnings plus the 10% surtax). Biden would also apply the surtax to call centers or services by a U.S. company located overseas but serving the U.S. market, where jobs could have been located in the United States.

The fact sheet states that Biden would implement strong anti-inversion regulations and penalties, and would deny all deductions and expensing write-offs for moving jobs or production overseas, where those jobs could plausibly be offered to American workers.

Onshoring incentives

The Biden campaign has announced a new “Made in America” tax credit, a 10% advanceable credit for companies making investments that create jobs for American workers. As proposed, the credit would be available for the following purposes:

  • The revitalization of existing closed or closing facilities, so that such facilities could reopen for job-creating production in any manufacturing area. As an example, if a new company or worker-owned cooperative were to reopen or renovate a closed factory to produce a new product, it would be eligible.
  • The retooling of any facility to advance manufacturing competitiveness and employment. The fact sheet provides the example of an auto company that retools an existing factory to produce next generation electric vehicles or a steel plant that invests in new machinery and equipment to meet new Buy American standards, or to improve export competitiveness as long as they maintain their overall U.S. wage base. The campaign says that criteria for investment may be expanded for selected industries deemed essential for national or health security or select industries of the future being subsidized by the Chinese government.
  • Expenses incurred or investments made in reshoring of job-creating production, call center jobs or other service jobs from overseas back to the United States, including shipping and moving costs and the costs of training new personnel.
  • Expanding or broadening U.S. facilities to grow U.S. employment (to apply only if the investment represents an expansion of U.S. production and not simply a relocation of existing U.S. jobs or production).
  • The expansion of a company’s manufacturing payroll, to apply to the increment of increased wages above that company’s historic, pre-COVID baseline for manufacturing jobs paying up to $100,000.

Mazars’ Insight

On the issue of providing tax incentives for onshoring of jobs and penalties for moving jobs overseas, the two candidates are similarly aligned – the Trump campaign proposes tax credits for companies that bring back jobs from China, 100% expensing deductions for essential industries like pharmaceuticals and robotics that bring back manufacturing to the United States, and “Made in America” tax credits. Note, however, that Republican investment incentives generally tend to favor refundable credits rather than advanceable credits as proposed by Biden.

Please contact your Mazars USA LLP professional for additional information.

This alert was produced in conjunction with Ivins, Phillips & Barker, Chtd.

Published on October 7, 2020

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.