“In addition to giving the United States the highest combined corporate rate in the developed world, Biden wants to impose an uncompetitive minimum tax on American companies,” Republican members of the House Ways and Means Committee said in a joint statement Wednesday. “America is the only country that now sets a minimum tax on the foreign earnings of domestic companies—now President Biden wants every country to impose such a tax, in exchange for his promise to keep the U.S. minimum tax higher than other countries.”
The U.K. government recently announced a plan to raise corporate tax rates to 25% in 2023, from 19%, for businesses with profits over 250,000 pounds ($345,000). That would be mark the first hike since 1974 in the country. Rates in Canada, France, Germany, Italy and Japan are all above 25%.
White House National Economic Council Director Brian Deese said the plans would help stop a “race to the bottom internationally” on corporate taxes. And he argued that the overall infrastructure program would prove beneficial to private sector companies. “These public investments are among the highest-return investments in terms of spurring private investment,” he said in an interview with Bloomberg TV Wednesday.
Mike Crapo, the top Republican on the Senate Finance Committee, warned at a hearing last week that Democrats’ plans could bring back corporate inversions—deals where companies move their headquarters overseas for tax purposes, or takeovers of American businesses by foreign counterparts.
Buybacks Boomed
Inversions are particularly difficult today because of regulations designed to prevent such maneuvers, according to Noren, who’s now a partner at the law firm McDermott Will & Emery. U.S. companies would likely be targets for foreign buyers if the new tax rules were to become law, he said.
Trump’s reduction in the U.S. corporate-income tax rate to 21% from 35% proved to be a huge boon for the stock market. Many major U.S. companies said they would turn over most savings from the relief to their shareholders.
A year after the law was enacted, data showed that companies such as Apple Inc. and Walt Disney Co. were among those distributing the benefits in the form of share buybacks and dividends. In 2018, the technology industry authorized the greatest number of buybacks ever recorded, according to TrimTabs Investment Research. The $387 billion involved was more than triple the amount in 2017.
In terms of economic growth, the goal of encouraging companies to redeploy tax savings into assets and job creation had only mixed results, said Karen Brown, a law professor at George Washington University who focuses on taxes.
There was a boost soon after the law was passed, but that has moderated lately, and hasn’t lived up to the expectations set out by the Trump administration, she said. Similarly, the negative impacts of a tax rate increase might also prove to be relatively limited.
“In principle there should be no hit to capital spending provided that firms are still allowed to immediately expense capital outlays (as they have since the TCJA),” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “Most studies indicate that there are supply-side benefits to public infrastructure spending, i.e. productivity in the private sector gains when it employs a larger stock of public infrastructure capital.”
The capital spending tax benefits that Feroli refers to are set to begin phasing out at the end of next year—setting up another fight for Democrats and Republicans over the legacy of Trump’s tax law.
—With assistance from Cécile Daurat, Reade Pickert, Ryan Beene and Cameron Crise.
This article was provided by Bloomberg News.