What’s in The American Jobs Plan?
On March 31, 2021, the Biden Administration released an overview of The American Jobs Plan (Plan), which broadly outlines a proposed $2T modernization investment in the nation’s transportation, environmental and digital infrastructure and spread over eight fiscal years. The Plan includes fixing highways, upgrading ports, airports, and other transit centers. It calls for the modernization of public buildings, including federal facilities, upgrades to water delivery infrastructure, and revitalization of American manufacturing and innovation.
The Plan will be funded via the proposed “Made in America Tax Plan” (MATP), which calls for an immediate increase in the corporate tax rate, supporting more expanded IRS enforcement, a 15% minimum tax on corporate book income, and more. The MATP will reverse several provisions that were part of former President Trump’s 2017 Tax Cuts and Jobs Act, leaving businesses to bear the brunt through new and increased taxes, the key details of which we have summarized below.
Proposed MATP Increases
- Corporate Tax Rate Increase – The MATP proposes undoing the corporate tax rate cut passed during the Trump administration by increasing it from 21% to 28%. This change will impact every business, regardless of size, in Pennsylvania and New Jersey.
- Global Intangible Low-Tax Income (GILTI) -There would be an increase, typically assessed on multi-national corporations, from the existing 10.5% to 21%. Also, 10% exemption on qualified business and asset investments would be eliminated.
- Offshoring Jobs – Changes will also be made to ensure companies can no longer write off expenses associated with offshoring positions. The MATP will also incentivize on shoring by creating a tax credit for those that bring jobs to the U.S.
- Elimination of FDII – A key aspect of the plan also includes changing the way R&D is encouraged through the tax code. The tax incentives for Foreign Derived Intangible Income (FDII), which gives corporations a tax break for shifting assets abroad, largely ineffective as a catalyst for R&D, will be eliminated. The resulting revenue will be used to expand more effective research & development incentives.
- Minimum Tax on Book Income – The MATP would institute a minimum tax of 15% assessed on the income corporations use to report profits to investors (book income).
- Fossil Fuel Tax Preferences – There will be a comprehensive review and elimination of the subsidies and special tax credits available to the fossil fuel industry. Also, there is a proposal to restore payments from polluting companies to the Superfund Trust used to cover environmental cleanup expenses.
- Stricter Inversion Rules – There will also be changes to make it more difficult for U.S. companies to merge with a foreign business to avoid taxes by claiming to be a foreign company, despite maintaining leadership and operations domestically (known as inversion).
- Enhanced Enforcement – There will be a significant investment in enforcement activities to ensure taxes are properly calculated and paid. The funding is desperately needed as ten years ago, almost all large corporations were subject to an annual IRS audit, but the rate has dropped below 50% in recent years.
The American Jobs Plan is an ambitious effort to modernize American infrastructure, but it will likely result in businesses paying more in federal income taxes. While it is likely Congress will make several changes to the Administration’s initial framework before it becomes law, it is essential to understand how tax changes could impact your business in 2021 and beyond. We will continue to monitor developments relating to the Plan and provide updates accordingly.
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©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.