THE TAX FOUNDATION: The Biden administration has been supportive of the global tax negotiations, but the changes should be reviewed in the context of recent policy changes in the U.S. and elsewhere, the general landscape of business taxation in the U.S., and potential challenges and risks arising from the global tax deal:
1. Profit shifting incentives have decreased since 2017.
Recent data shows that 2017 tax policy changes from the Tax Cuts and Jobs Act (TCJA) have been effective in redirecting previously offshored assets back to the U.S. While the changes did reduce the tax burden on doing business inside the U.S., the overall tax burden on foreign income of U.S. companies was roughly unchanged.
2. Corporate tax rates have settled in the low 20s.
The U.S. corporate rate cut from 35 percent to 21 percent reflects a broader trend of countries pursuing corporate tax rates between 20 and 25 percent where the downward trend has leveled off in recent years. The total U.S. tax rate on corporate income (including state rates) is above the worldwide average rate.
3. U.S. business tax revenue measures should reflect both corporate and pass-through business entities.
The U.S. has a large pass-through business sector that is subject to the individual income tax. After adjusting for pass-through business tax collections, U.S. corporate tax collections align with the OECD average.
4. The U.S. corporate tax system remains incredibly complex.
Many of the 2017 changes made the tax system more complex for multinational companies. President Biden's and the Democrats' Build Back Better plan would make tax rules significantly more complex and would result in a higher tax burden compared to what the outline of the global minimum tax has to offer.
As we have recommended previously, one path forward for the U.S. system would dramatically simplify our international rules with a worldwide tax system and full credit for foreign taxes replacing GILTI while eliminating tax preferences that would not be recognized by the global minimum tax. Learn more.
