Generally, the American Jobs Plan is an infrastructure spending and job creation bill that contains various corporate tax changes. The American Families Plan seeks to increase federal spending in areas related to childcare, paid leave, education and healthcare. The American Families Plan generally offsets its spending with tax increases for high-income Americans. The Tax Proposals are set forth below. Note these are proposals and the ultimate legislation may be different.
U.S. Corporate Taxes
- Increase the corporate tax rate from 21% to 28%.
- Enact a 15% minimum tax on large corporations.
- “Large corporations” would be those with pre-tax book income in excess of $100 million.
- A 10% tax credit for companies that create jobs in the U.S. to incentivize manufacturing.
- Available for companies that revitalize closed or closing manufacturing facilities or that retool existing facilities to advance manufacturing competitiveness and employment.
International Business Taxes
- Global Intangible Low-Taxed Income (“GILTI”)
- The GILTI tax applies to certain income derived by a U.S. person who is a 10% shareholder of a “controlled foreign corporation.”
- Raise the minimum GILTI rate for corporations from 10.5% to 21%.
- Calculate GILTI on a country by country basis to prevent companies from sheltering income in low-tax jurisdictions by combining rates in those areas with tax rates in high-tax jurisdictions.
- Apply GILTI to all income and eliminate the exception that allows corporations to pay a zero-tax rate on the first 10% of return on foreign investment in qualified business assets.
- If enacted, these rules would substantially expand the application of the GILTI rules to U.S. persons with overseas investments, including foreign shipping companies that are controlled by U.S. persons.
- Eliminate the “Foreign Derived Intangible Income” (FDII) deduction, which allows domestic corporations to deduct a portion of the corporation’s income from export sales.
- Enact a global minimum tax through multilateral agreements, which would also deny deductions to foreign corporations on payments that would allow them to strip profits out of the United States if such corporations are based in a country which has not adopted the global minimum tax.
- Create a 10% penalty surtax on the profits for manufactured goods of U.S. companies that move production operations overseas and sell products back on American soil.
- In combination with the increased corporate tax rate, these profits would be taxed at an effective rate of 30.8%.
- Establish a clawback provision to force companies to return public investments and tax benefits when sending jobs overseas.
- Tighten U.S. corporate inversion rules making it more difficult for U.S. corporations to claim foreign residence by acquisition or merger.
Tax Enforcement and Compliance
- Give the Internal Revenue Service an additional $80 billion over the next 10 years to increase enforcement of corporate compliance by ensuring that it has the resources it needs to effectively enforce the tax laws against corporations.
On April 28, 2021 the Biden administration released a statement entitled “Fact Sheet: The American Families Plan”. The announcement discusses certain U.S. individual tax code changes to finance social spending in the forthcoming American Families Plan. Certain of these changes are outlined below:
U.S. Individual Taxes
- Increase the top marginal rate to 39.6% for taxpayers with a taxable income greater than $400,000.
- Eliminate long-term capital gains treatment for carried interest, taxing these amounts as ordinary income. Under current law, carried interest attributable to gains from assets held for more than three years is treated as long-term capital gains.
- Eliminate preferential capital gains and qualified dividend treatment for taxpayers with taxable income of $1 million or greater.
- Coupled with the increase in the top marginal rate and the Obamacare 3.8% tax on investment income, the top federal rate on capital gains and dividends would be 43.4%.
- Address inconsistent application of the 3.8% Obamacare tax for taxpayers with income greater than $400,000.
- Permanently extend the current limitation in place that restricts the deduction of excess business losses against non-business income.
- Eliminate the stepped-up basis rule that allows people to pass capital gains to heirs without tax after death for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions).
- Eliminate deferral of gains greater than $500,000 related to “like-kind exchanges” of real property.
For further questions regarding how this might affect you or your business, please contact Jonathan P. Brose (212-574-1615), James C. Cofer (212-574-1688), Ronald P. Cima (212-574-1471), Daniel C. Murphy (212-574-1210), Brett R. Cotler (212-574-1269) or Tyler J. Combest (212-574-1472).