Top Democrats Float Alternative to Biden’s Corporate-Tax Plan

Three top Senate Democrats released a proposal to overhaul the U.S. international tax system that could shape the outcome of the global tax revamp that the White House is pursuing to fund infrastructure spending.

The new outline, released by Senators Ron Wyden of Oregon Sherrod Brown of Ohio and Mark Warner of Virginia, calls for higher levies on offshore profits and stronger penalties for companies that move income outside the country to avoid paying taxes to the Internal Revenue Service. The plan stops short of calling for any specific rate levels, and seeks feedback on the ideas as lawmakers work to draft legislation.

“This system needs significant reforms to ensure big corporations pay their fair share, while helping to spur investment in the U.S., not in foreign countries,” the outline said.

Wyden said that the Democrats are working to get their colleagues on board with the proposal and that some specifics -- such as the corporate tax rate -- are still items under discussion.

“On all of the big principles, there is very strong agreement,” Wyden said in a call with reporters on Monday. “We want the jobs here at home and we want the incentives here at home.”

The plan could serve as an alternative or an addition to the corporate and international tax overhaul that President Joe Biden released last week to help finance $2.25 trillion in infrastructure spending. Along with boosting the corporate income tax rate to 28% from 21%, the White House plan also calls for a complete revamp of the complicated matrix of carrot-and-stick incentives implemented in 2018 that govern how U.S. companies pay taxes on foreign profits.

Unlike the Biden proposal, which largely calls for a repeal of the international tax changes Republicans implemented in their 2017 tax law, Senate Democrats are proposing revisions to the current system. The lawmakers said that the companies should pay more taxes on their offshore profits -- what is known as global intangible low-taxed income, or GILTI.

Debates Ahead

Current law sets the rate as low as 10.5% to about 13% depending on the country. Biden has called for a 21% minimum tax on all foreign profits. The senators did not propose a specific rate.

Both the administration’s and the senators’ proposals are just outlines, and have yet to be translated into legislative text, where more details would be fleshed out.

“There is some consensus beginning to be built on the international side,” Jen Acuna, a principal at KPMG who was a congressional tax aide and helped develop the international tax regime in the 2017 GOP tax law. “Directionally, they are both are going the same way.”

Both Biden and the Senators have called for the offshore rates to be calculated on a country-by-country basis, rather than blending across all jurisdictions, which will give companies less room to reduce their tax bills. However, the two plans don’t agree on the technical details -- Biden’s plan would require each country to calculate their rate, while the Senate plan would separate high tax countries from low-tax ones.

The Democratic senators also called for ending what they characterized as incentives in the 2017 tax overhaul for companies to build factories and facilities abroad. They want to add benefits for those investments to be made in the U.S. Biden has proposed something along those lines.

Trump’s tax law intended to make it easier for American companies to compete with foreign competitors in countries where taxes were lower and international tax regimes were more permissive. Democrats have said it ended up doing little to spur domestic investment or to stop firms from shifting income and assets abroad.

How to tax U.S. companies abroad is likely to be at the center of debate over funding the infrastructure package in the coming months.

Companies and business groups are already lobbying against the effort, and many Republicans have said they won’t vote for a bill that includes corporate-tax increases -- indicating Democrats could have to pass legislation with their own narrow majorities. House Speaker Nancy Pelosi told her caucus last week that she hopes to pass the bill by July 4.

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