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Three top Senate Democrats released a proposal to overhaul the U.S. international tax system that could shape the outcome of the global tax revamp that the White House is pursuing to fund infrastructure spending.
The new outline, released by Sens. Ron Wyden, Sherrod Brown and Mark Warner, calls for higher levies on offshore profits and stronger penalties for companies that move income outside the country to avoid paying taxes to the IRS. The plan stops short of calling for any specific rate levels and seeks feedback on the ideas as lawmakers work to draft legislation.
“This system needs significant reforms to ensure big corporations pay their fair share while helping to spur investment in the U.S., not in foreign countries,” the outline said.
The plan could serve as an alternative or an addition to the corporate and international tax overhaul that President Joe Biden released last week to help fund $2.25 trillion in infrastructure spending. Along with boosting the corporate income tax rate to 28% from 21%, the White House plan calls for a complete revamp of the complicated matrix of carrot-and-stick incentives implemented in 2018 that govern how U.S. companies pay taxes on foreign profits.
Unlike the Biden proposal, which largely calls for a repeal of the international tax changes Republicans implemented in their 2017 tax law, Senate Democrats are proposing revisions to the current system. The lawmakers said that the companies should pay more taxes on their offshore profits — what is known as global intangible low-taxed income, or GILTI.
Current law sets the rate as low as 10.5% to about 13% depending on the country. Biden has called for a 21% minimum tax on all foreign profits. The senators did not propose a specific rate.
The administration’s and the senators’ proposals are just outlines, and have yet to be translated into legislative text, in which more details would be fleshed out.
The Democratic senators also called for ending what they characterized as incentives in the 2017 tax law for companies to build factories and facilities abroad and for adding benefits for those investments to be made at home. Biden has proposed something similar.
Trump’s tax law intended to make it easier for American companies to compete with foreign competitors in countries where taxes were lower and international tax regimes were more permissive. Democrats have said it ended up doing little to spur domestic investment or to stop firms from shifting income and assets abroad.
How to tax U.S. companies abroad is likely to be at the center of debate over funding the infrastructure package in the coming months.
Companies and business groups already are lobbying against the effort, and many Republicans have said they won’t vote for a bill that includes corporate-tax increases — indicating Democrats could have to pass legislation with their own narrow majorities. House Speaker Nancy Pelosi told her caucus last week that she hopes to pass the bill by July 4.
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