President Biden’s American Jobs Plan Includes Major Corporate Tax Changes; Tax Credits for Clean Energy and Domestic Manufacturing

President Biden announced the American Jobs Plan, which sets forth the first piece of the administration’s infrastructure plan. To finance these objectives, President Biden’s Made in America Tax Plan contains a number of provisions that would significantly increase taxes on corporate businesses and businesses with foreign operations. The administration has indicated that additional tax provisions targeted at noncorporate businesses and high-income individuals may be included in the second piece of the administration’s infrastructure plan, which is expected to be released in the coming weeks. A summary of the Made in America Tax Plan is included below.

The Made in America Tax Plan would:

• Raise the corporate income tax rate to 28% from 21%
• Add a 15% minimum tax on the financial statement income of large multinational corporations
• Make a number of revisions to the minimum tax on global intangible low-taxed income (GILTI), including:
  • Increase the rate on GILTI to 21% from 10.5%
  • Apply GILTI on a country-by-country basis
  • Repeal the exemption for 10% deemed tangible income return
• Encourage other countries “to adopt strong minimum taxes on corporations”
• Deny deductions to foreign corporations on payments deemed to be stripping profits out of the U.S. (if they are based in a country that does not adopt a “strong minimum tax”)
• Repeal the Sec. 250 deduction (for foreign-derived intangible income (FDII))
• Repeal the high-tax exception to tested income under Sec. 951A and foreign base company/Subpart F income
• Repeal the 80% limitation for GILTI foreign tax credits and limit the ability to carry back foreign tax credits
• Tighten the Base Erosion and Anti-Abuse Tax (BEAT) minimum tax regime and encourage foreign countries to enact a minimum tax
• Deny deductions for expenses associated with moving U.S. jobs offshore
• Provide a tax credit for expenses associated with onshoring jobs back to the U.S.
• Add further restrictions on corporate inversions
• Eliminate tax preferences for the fossil fuel industry
• Increase audit enforcement against corporations

Targeted Tax Credits

In addition to the above provisions, the Made in America Tax Plan also includes a number of other targeted tax credits or other proposals, which would:

• Reform and expand the Sec. 45Q credit for activities related to carbon capture
• Enact the Neighborhood Homes Investment Act (NHIA) and offer over $20 billion of tax credits over five years for the retrofitting and production of energy efficient homes
• Expand the investment tax credit and production tax credit for clean energy generation and storage and extend both credits for 10 years
• Create a targeted investment tax credit to incentivize the buildout of at least 20 gigawatts of high-voltage capacity power lines
• Increase an existing tax credit for employers that build child-care facilities at places of work to an amount equal to 50% of the first $1 million of construction costs per facility from the current maximum credit of $150,000
• Extend the existing Advanced Manufacturing Tax Credit under Sec. 48C
• Provide tax incentives to buy American-made electric vehicles
• Extend and expand existing home and commercial energy efficiency tax credits
• Create a tax credit to incentivize low- and middle-income families and small businesses to invest in disaster resilience

The Takeaway

The American Jobs Plan is just the first piece of the administration’s infrastructure proposal. The administration has also indicated that additional tax provisions targeted at noncorporate businesses and high-income individuals may be included in the second piece of the administration’s infrastructure plan, which is expected to be released in the coming weeks. At this point, it is unclear whether all or a portion of the tax changes will be enacted into law. Republicans are expected to oppose the tax increases and some Democrats are reluctant to support an infrastructure package without bipartisan support. In addition, it is possible that some members of Congress may have different views than the administration regarding the extent to which income tax increases are needed and the policies that should be implemented to do so. Accordingly, it is likely that the policy components of the infrastructure plan, including any changes in tax law, may change during the legislative process.