On March 31, 2021, President Biden released The American Jobs Plan, an ambitious $2 trillion spending plan to enhance and rebuild American infrastructure and increase supports in other areas of American society.
According to the Fact Sheet released by the Administration, the US is the wealthiest country in the world but only ranks 13th when it comes to the overall quality of its infrastructure. Among the spending priorities is fixing highways, rebuilding bridges and upgrading ports, airports and transit systems, clean energy, increased spending on child care and increasing wages for essential home care workers.
In order to fund these changes, he has proposed a series of corporate tax changes which will raise $2 trillion over 15 years. The most notable ones are as follows:
- Increasing the US federal corporation tax rate from 21% to 28%.
- It is believed that the changes to the tax law made under the Trump Administration has encouraged the offshoring of jobs and profits from the US. Rather than addressing the crux of the issue, Biden is proposing an increase in the GILTI tax on US owned foreign corporations from 10.5% to 21%. Though US expatriates owning foreign corporations in their country of residence are not driving this issue, they will be adversely impacted by its effect. This could have a significant impact on US shareholders of Canadian corporations whereby, in many cases, it may not be worthwhile for US citizens who own Canadian corporations to claim the Small Business tax rate on their Canadian corporate filings.
- Strengthening anti-inversion rules to prevent/penalize US corporations from moving to lower tax jurisdictions.
- Ramping up enforcement against large multinational corporations.
A couple of items to note:
- Though changes to estate/death taxes are not mentioned, they are still on the table for prospective changes.
- There is also no mention of a personal tax increase, either by increasing payroll taxes or decreasing itemized deductions, as promised during the campaign. It is believed that such a move could accelerate migration of higher income taxpayers and the companies they work for from high tax states such as New York, New Jersey and California which are all Blue States to lower tax jurisdictions such as Florida and Nevada.
- Notwithstanding a Democratic majority in Congress, there is no guarantee that the tax law will change. There are some Democratic senators who seem inclined to balk at “big spending” especially when it translates to higher taxes.
We will continue to keep our clients and readers updated on any developments.
If you have any questions on how these potential changes may affect you, please reach out to one of the following members of the Zeifmans US Tax Team today: