- Biden drops $700 billion from infrastructure plan in attempt to gain GOP backing
- 15% corporate minimum tax rate seeks to even the global playing field and halt tax avoidance
- How will the US generate funding for the proposed spending budget?
In a meeting last Wednesday, President Biden reportedly shared with Sen. Shelley Moore Capito (R-WV), the GOP’s point person for infrastructure negotiation, his plan to cut spending on the American Jobs Plan from its current figure of $1.7 trillion to $1 trillion. Biden’s decreased budget is likely a solution-based reaction to the consistent pushback he’s received from Republican Senators.
Corporate Minimum Tax Rate
The biggest change coming from Biden’s new budget includes the proposal of a 15% minimum corporation tax rate. Biden’s original budget plan levied the Federal max corporate tax rate at 28% from the current 21%. This tax hike was projected to increase government revenue by $850 billion and fund a large portion of the spending budget of the American Jobs Plan.
Global Minimum Tax Rate
Simultaneous to Biden’s domestic tax proposals, this past weekend, G7 overhauled international tax laws to establish a new global minimum tax rate of 15%.
Treasury Secretary, Janet Yellen, has been vocal on the agreement, saying it “would end the race to the bottom in corporate taxation.” Ireland, like many other smaller countries, has thrived as a tax haven and worries that the new rate will only disrupt the country’s economic model. Irish Finance Minister Paschal Donohoe said earlier this year that smaller nations who lack the economic capacity to leverage higher rates should be able to determine their own tax rates.
For decades, large corporations have reduced their tax liability and maximized after-tax income through tax avoidance. By keeping in line with the global minimum tax rate, the US would likely see fewer schemes, helping maximize government tax profits.
How Will the US Generate the Spending Budget?
If this proposal moves forward, the remaining concern is over how the $1 trillion in government spending will be generated. With the decreased corporate tax rate, funding for the plan will now come more directly from increased tax enforcement and reduced tax breaks for wealthy individuals. It is projected that increased enforcement from the IRS would bring in an additional ~$700 billion, with over $200 billion projected to come from the removal of capital gains tax breaks.
Last week, Republicans released a $928 billion plan for updating roads, bridges, and other transit systems over the next 8 years. Biden’s plans are not set in stone, so it will be interesting to see what other compromises Democrats and Republicans will make to narrow their gap of disagreement. Alternatively, Democrats can try and pass the new bill without GOP support through the budget reconciliation process, which only has the requirement of a simple majority vote from a split Senate; however, not all Democrats would be comfortable moving forward without bipartisan support.
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