Kyle Pomerleau of the American Enterprise Institute recently testified in a U.S. House committee about the positive impact of 2017 federal tax changes during the Trump administration. He raised a red flag about Biden administration proposals.
In its last three budgets, the Biden Administration proposed raising the statutory corporate income tax rate from 21 percent to 28 percent.
In addition, the Administration has proposed reforms to the tax treatment of multinational corporations. This proposal would raise the GILTI tax rate to approximately 22 percent, and repeal FDII and replace it with unspecified incentives for research and development. The reforms would also require corporations to calculate GILTI for each country in which they operate and repeal the 10 percent exclusion for qualified business asset investment (QBAI).
They would replace BEAT with a proposal from the OECD’s Pillar Two, called the Under Taxed Profit Rule (UTPR). Lastly, it would enact a new limitation on interest deductions for multinational corporations.
The Biden Budget proposals would, once again, make the US an outlier among OECD nations in several important respects. First, the 28 percent corporate income tax rate, combined with the average of state and local corporate taxes, would be 32.5 percent. Although this would be lower than the US corporate tax rate prior to the TCJA, it would be the second-highest corporate income tax rate in the OECD, behind only Colombia’s 35 percent corporate income tax rate.The higher statutory tax rate would also push up the US’s effective tax rate on investment. The marginal effective tax rate would rise from 18 percent to 23.7 percent. This would be the second-highest marginal effective tax rate on new investment in the OECD, surpassed only by Colombia, and would be 12.4 percentage points higher than the OECD average. The average effective tax rate would also rise from 23.3 percent to 29.5 percent and would only be lower than Columbia’s.
