⁉️ Biden Adjusts Tax Plan

Dear Rich Lifer,

Taxes are making headlines on multiple fronts this week. 

At home in America, the Biden Administration announced a softening of his tax plan, and globally, the G-20 has said they plan to agree on a minimum tax rate for company profits. 

Today, we’ll take a look at how these updates will affect businesses nationally and internationally. 

We begin on U.S. soil…

Biden Adjusts Tax Plan 

During the presidential campaign, Joe Biden said he would impose a 15% minimum tax on profits reported to investors, thus limiting large, profitable companies’ use of convoluted tax loopholes. Initially, this adjustment aimed to stop big corporations like Amazon from paying next to nothing in corporate taxes.

However, the 15% minimum tax that is now being included in his infrastructure bill will affect far fewer companies than he initially stated it would. 

According to details the Treasury Department released this Wednesday, the tax is aimed at companies that report large profits to investors but have low tax payments and would only apply to companies with income surpassing $2 billion, up from the $100 million cap that Mr. Biden pushed during the campaign. 

His new plan would also allow companies who qualify for the tax to get the benefits of tax credits for research, renewable energy and low-income housing. 

If the rest of Biden’s infrastructure plan gets implemented, this means that just 180 companies would even meet the income threshold, and just 45 would pay the tax, according to White House estimates. 

In a report on this issue, the Treasury Department stated that the 15% minimum tax “is a targeted approach to ensure that the most aggressive tax avoiders are forced to bear meaningful tax liabilities.” The report also outlined that the tax would raise $2 trillion over 15 years to pay for eight years of spending on roads, bridges, transit, broadband and other infrastructure projects. 

The Biden administration argues that the current corporate tax system contains many features that incentivize companies to move jobs abroad and raises too little money. 

The administration also plans to partly reverse the GOP Congress’s 2017 cuts to the corporate tax rate, raising the rate to 28%. The plan would also impose a 21% minimum tax on U.S. companies’ foreign income, remove an export incentive and raise taxes on some foreign companies’ U.S. operations.

Treasury Secretary Janet Yellen said the new tax plan “changes the game we play” and that “America will compete on our ability to produce talented workers, cutting-edge research and state-of-the-art infrastructure, not on whether we have lower tax rates than Bermuda or Switzerland.” 

This week, Ms. Yellen made her argument for a global minimum corporate tax rate and called for global cooperation. A global minimum will likely be crucial to Biden’s tax because, without it, foreign-owned businesses operating overseas could become more profitable than their U.S.-owned competitors. 

Thankfully, the idea of a global minimum corporate tax rate lines up with the goals of finance ministers from the Group of 20 leading economies (the G-20), who all met virtually this week. 

And this brings us to our next tax update… 

G-20 Works to Agree on Global Minimum Tax Rate 

On Wednesday, the G-20 said they hoped to agree on a global minimum tax rate for company profits by the middle of this year. They note that this move is part of their overall goal to reimagine the way international businesses are taxed. 

After the meeting, Italian Finance Minister Daniele Franco said Ms. Yellen’s proposal was consistent with the G-20’s ambitions. Mr. Franco chaired the meeting and said there were still issues that needed to be resolved in order to bring yearslong talks on overhauling the international tax system to a successful conclusion. However, he was optimistic the group could reach an agreement by their next meeting, noting, “What we see this year is an acceleration in the process, and the G-20 is expecting to reach an agreement in July.” 

International efforts to close loopholes and reduce tax avoidance came on the heels of the global financial crisis, and the pandemic has only intensified these efforts. 

According to the International Monetary Fund (IMF), governments globally have committed $16 trillion to fight the pandemic and its economic fallout. As a result, world-wide government debt rose to a record 97% of global output last year. 

Ms. Yellen commented that the lowering of the corporate tax rate over the years has only resulted in countries continually undercutting each other in their efforts to gain foreign investments and jobs. She believes the tax plan “incentivizes the whole world to give up the game.”

This “incentive” in this case would be a penalty — a provision that would deny tax deductions to companies that send payments from the U.S. to related entities in low-tax jurisdictions where they pay less than the internationally agreed-upon minimum tax. 

European governments seem largely enthusiastic about a global minimum tax rate, but they are also interested in other changes to taxation that have been under negotiation. For example, The Wall Street Journal reports:

European governments believe U.S. technology companies should pay them more tax, and they have launched a variety of special levies on digital services, partly to raise revenue and partly to maintain pressure for a global agreement. Because those levies threaten to tax the same profit more than once, technology businesses strongly object and have said they would prefer a globally agreed reform.

Mr. Franco said the G-20 hopes to agree on both a global tax minimum and a new way of assigning profits to be taxed among countries in the same package. 

Of course, these negotiations are ongoing so we will have to wait and see exactly what will be agreed upon by this July deadline. As for Biden’s infrastructure plan, it certainly faces hurdles in the Senate and will likely be hard to pass without using the process of reconciliation. 

Stay tuned…

To a richer life,

The Rich Life Roadmap Team 

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