Joe Biden, who has been projected as the winner of the Presidential election by the Associated Press and others, pledged during his campaign to implement policy initiatives on infrastructure and manufacturing, healthcare, and the environment, and to pay for them with increased taxes.
President-elect Biden has also signaled, however, that his first priority will be managing the COVID-19 crisis, including its economic impact. To that end, he has already announced he will be forming a COVID-19 task force immediately as part of his transition to the White House. And he has previously called for the next federal virus response, stimulus and relief package to be larger than the $2t Coronavirus Aid, Relief, and Economic Security (CARES) Act, although a package of that size may be a near impossibility unless the Democrats control the Senate.
Although Biden had previously signaled that tax increase plans would be implemented on “Day 1,” it appears now that such plans may wait until after the virus and its effects are addressed.
President-elect Biden’s tax and trade agenda
Regarding taxes, Biden said he would restore the top personal marginal income tax rate back to 39.6% from 37%. He would also raise the top corporate income tax rate to 28% from 21%. He has proposed taxing capital gains and dividends as ordinary income for those with annual incomes of more than $1m and setting a 15% minimum tax on the book income of corporations with book income greater than $100m. These changes are proposed to pay for increased spending, on infrastructure, healthcare, education and the environment, not to reduce the debt or deficit. (Biden also has promised not to raise taxes on households earning less than $400,000 a year.)
At a glance: major tax items
• Corporate rate: Now 21% / Biden 28% plus min tax
• Minimum tax: Biden 15% on book income for corporations with book income over $100m
• International: Biden 21% global intangible low-taxed income (GILTI) rate applied per country
• Top individual rate: Now 37% / Biden 39.6%
• Top capital gains rate: Now 20% + 3.8% net investment income tax (NIIT)/Biden 39.6% + 3.8% NIIT
• Estate tax: Biden return to 2009 regime; end stepped up basis
Biden has vowed to protect and expand the Affordable Care Act (ACA) with a plan to insure more than 97% of Americans, at a cost of $750b over 10 years, paid for in part with revenue from increased taxation of capital – although expanding the ACA and paying for the expansion with tax increases with a 50/50 or Republican-controlled Senate would be a very difficult task.
Biden has also said another key initiative of his presidency will be to revitalize America’s middle class. He says his Made in America package will create millions of middle-class jobs. He has outlined plans to invest a combined $700b in procurement and R&D, and $2t in clean energy and infrastructure investment.
These plans could incentivize a return to more localized supply chains, the desirability of which was highlighted by COVID-19-related disruptions and shortages. Biden says he would pay for his infrastructure plan by “reversing the excesses of the Trump tax cuts for corporations; reducing incentives for tax havens, evasion, and outsourcing; ensuring corporations pay their fair share; closing other loopholes in our tax code that reward wealth, not work; and ending subsidies for fossil fuels.”
Regarding discouraging off-shoring and encouraging on-shoring, Biden has proposed increasing the tax rate on profits earned by foreign subsidiaries of US firms by increasing the GILTI tax rate to 21% and applying the regime on a per-country basis. He has also proposed creating a Made in America tax credit to offset 10% of investments geared toward creating jobs in the United States and introducing a surtax on certain goods and services imported into the United States.
Focusing on tax and trade policy, the potential significant legislative changes to US tax rules and uncertainty regarding trade may cause many US-parented businesses with offshore operations to weigh whether to keep those operations offshore and risk higher taxes or bring them back to the United States, perhaps taking advantage of Biden’s planned incentives for doing so, and keeping in mind changes to tariffs and other trade barriers. The likelihood and scope of any such changes will become clearer only after control of the Senate is decided.
Clearly, if the Senate remains in Republican control, the chance of significant tax legislative changes lowers significantly, and a Biden Administration may look to changes that can be made without Congress, such as through the regulatory process.
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Brandon Caroprese, CPA, MST