American companies would face steeper penalties for shifting profits abroad in a plan from Senate Democrats that offers the clearest picture yet of the higher levies that big firms could be paying from next year.
In draft legislation released Wednesday, Senate Finance Committee Chairman Ron Wyden is outlining his vision for how to reform the global tax system for multinational corporations, which Democrats say have been subject to lax rules that for decades have allowed them to shift profits and jobs outside the U.S.
“Overhauling the international tax code is central to our efforts to restore fairness,” Wyden said in a statement on the legislation, which was co-authored by fellow Finance Committee members Sherrod Brown and Mark Warner. Increased corporate-tax levies will “fund critical investments like the paid leave and the expanded child tax credit—Social Security for our children” Democrats are planning, he said.
The proposal is one legislative piece of a $3.5 trillion tax and spending package that Democrats are now crafting to implement the bulk of President Joe Biden’s longer-term economic plans. That process, known as reconciliation, got the green light in House action Tuesday, and is expected to take weeks or months to wrap up.
The Senate Democrats’ international corporate tax proposals don’t yet prescribe specific tax rates, leaving that to lawmakers to fill in as they consider the broader bill.
Their plan largely works within the existing set of principles and regulations governing corporate taxes—a move that could ease its implementation. The regulations would strengthen penalties for companies that move money and assets offshore to avoid Internal Revenue Service levies, while boosting tax benefits for those that conduct research and development domestically.
The Biden administration has called for a 28% domestic corporate rate and a 21% minimum on profits earned offshore. Those figures have been subject to some debate, however. Senator Joe Manchin, a West Virginia Democrat, said he doesn’t want a corporate rate higher than 25%. Meantime, the U.S. is calling for other countries to adopt a 15% global minimum—lower than the 21% Biden has proposed for U.S. companies when they operate overseas.
The draft legislation, which asks for public feedback by Sept. 3, is the most public piece of the Democrats’ efforts to overhaul the tax system, which so far has largely been done behind closed doors.
Along with corporate-tax hikes, Democrats aim to boost levies on wealthy individuals.
The international tax proposals are considered to be some of the most technically challenging. They seek to revise many of the changes that Republicans made to the tax code in 2017.