President Biden recently proposed a massive infrastructure package, The American Jobs Plan, which will be funded by the Administration's Made in America Tax Plan. There are a lot of policy goals outlined in this proposal that will create jobs in certain sectors and move the country toward an economy the President has repeatedly stated he supports over the current one we have now. An economy and tax code that chooses specific jobs over others. A claim that, with respect to energy policy, he has made multiple times on the campaign trail, and an economy that provides tax incentives to keep manufacturing here in the U.S.
Yet, if the President’s plan is supposed to increase American competitiveness, and keep us either at, or above, the global playing field, then why do we need specific tax incentives to keep manufacturing in this country? If these new tax changes being proposed are so great for our economy, wouldn’t the logical choice for U.S.-based companies be to stay in the U.S.? And for those overseas; wouldn’t a plan that promotes economic growth and job creation entice them to locate their headquarters in the U.S.?
Sadly, the answer appears to be no. Don’t take my word for it. Look at what the President himself put into the plan to build the virtual walls around the economy higher to prevent companies from fleeing the U.S. or being bought by foreign competitors.
The President is proposing new and tougher anti-inversion rules. However, inversions haven’t been a thing for years – both prior regulatory actions under the Obama Administration, and the provisions of the 2017 Tax Cuts and Jobs Act, have all but eliminated the phenomenon in which a U.S. company allows itself to be acquired by a non-U.S. firm to get itself out from our tax system. The inclusion of anti-inversion measures in the President’s plan is a tacit admission that his other tax proposals would result in U.S. companies leaving the US - aka, inverting.
Additionally, proposals such as changes to the Global Intangible Low-Taxed Income (GILTI) rules, repealing the Foreign-Derived Intangible Income (FDII) deduction, raising the corporate tax rate, and possible changes to the Alternative Minimum Tax (AMT), not to mention additional proposals targeting the individual side of the tax code we are likely to see later, will combine to put American-based companies at a competitive disadvantage when matched against their foreign headquartered competitors.
President Biden and others in his Administration have repeatedly said that other countries might – and even should – impose new, and high, foreign minimum taxes on their own companies to match what the U.S. did with the 2017 GILTI regime. However, despite years of multi-lateral negotiations, there is no global agreement on this, and no proof other nations will choose to impose similar regimes on their own global champions. This would potentially leave the U.S. as the sole unilateral victim of its own zeal.
This notion that there will be large tax hikes on foreign companies domiciled in countries that don’t adopt their own minimum tax is a new one. This was not something then-candidate-Biden campaigned on. It is, in theory however, something that would help level a competitive global landscape that Biden's tax hikes on U.S.-based companies would make worse.
The global tax system is far from perfect. You would be hard-pressed to find anyone who disagrees with that notion. But it is also hard to understand how raising taxes on US companies and threatening to raise taxes on foreign companies choosing to invest and create jobs here is what a recovering economy needs to get back to full strength.