Biden 2021 Tax Proposals: Individuals & Corporations

The White House has released several tax proposals, culminating with remarks by President Biden in a Congressional address. These proposals include the American Families Plan, for which the White House released a fact sheet (find link here) on April 28, 2021, and the Made in America Tax Plan, for which the White House released a fact sheet (find link here) on March 31, 2021, followed by a U.S. Treasury report (find link here) released on April 7, 2021. Congress has not yet acted on these proposals.

Highlights of the American Families Plan:

• The individual U.S. federal income tax rate for taxpayers in the top tax bracket would be increased from 37 percent to 39.6 percent.
• The top tax rate on capital gains for households making more than US$1 million would be increased from 20 percent to 39.6 percent.
• The stepped-up basis at death for unrealized gains in excess of US$1 million (US$2.5 million per couple when combined with certain exemptions) would be eliminated unless such gains are donated to charity.
• Financial institutions would be required to report information on account flows so that earnings from investments and business activity would be subject to increased reporting to the Internal Revenue Service.
• Carried interest for managers of certain types of investment funds would be taxed at ordinary income tax rates.
• The tax-free treatment of like-kind exchanges of real property for gains greater than US$500,000 would be eliminated.
• The current limitation on excess business losses would be permanently extended.
• Certain rules relating to the 3.8 percent Medicare tax on investors and high-income individuals would be tightened.
• Certain existing tax provisions would be extended and/or expanded, including the Child Tax Credit, the Earned Income Tax Credit, the Child and Dependent Care Tax Credit and also the expanded health insurance tax credits and the Affordable Care Act premium tax credits. In particular, the Child Tax Credit would be increased from US$2,000 to US$3,000 per child for children six years old and above (US$3,600 for children under six) and would be fully refundable in regular payments during the year through 2025. The temporary Child and Dependent Care Tax Credit expansion would be made permanent.
• The Internal Revenue Service would receive increased funding to enhance enforcement against high-income individuals and large corporations, businesses and estates.
• No effective dates for these proposals have been provided.

Highlights of the Made in America Tax Plan:

• The corporate U.S. federal income tax rate would be increased from 21 percent to 28 percent.
• The minimum tax on global intangible low-taxed income (“GILTI”) would be increased from 10.5 percent to 21 percent and would be calculated on a country-by-country basis. The tax exemption for the first 10 percent return on foreign assets would also be eliminated.
• Certain deductions for the offshoring of production would be disallowed.
• The base erosion and anti-abuse tax (“BEAT”) regime would be replaced by the Stopping Harmful Inversions and Ending Low-tax Developments (“SHIELD”) regime. Under the SHIELD regime, if the effective tax rate of a foreign-related payee is below a specified threshold (21 percent, unless set at a different rate pursuant to multilateral agreements with other countries), the related U.S. payor would be denied certain U.S. federal income tax deductions.
• The SHIELD regime would strengthen current anti-inversion rules intended to prevent U.S. corporations from claiming foreign jurisdictions as their tax residence as a result of corporate acquisition and/or merger transactions, referred to as “inverting.”
• The favorable U.S. tax rate for foreign-derived intangible income (“FDII”) would be repealed.
• A minimum income tax rate of 15 percent would be imposed on previously untaxed “book income” of certain types of large corporations.
• Certain special tax provisions that benefit the fossil fuel industry would be replaced with incentives for clean energy production, including extending the production tax credit and investment tax credit for energy generation and storage, creating new tax incentives for long-distance transmission lines and expanding tax incentives for electricity storage projects.
• No effective dates for these proposals have been provided.