Biden ‘confident’ has votes for new tax and spending framework

By Doug Connolly, MNE Tax

US President Biden announced on October 28 a new framework for his “Build Back Better” bill, which he is now “confident … can pass both houses of Congress.”

The announcement followed negotiations seeking to appease moderate holdouts on his broad tax and social agenda, without losing the Democratic party’s progressives in the process. The talks resulted in dropping central features of Biden’s original tax plan, such as an increase in the corporate tax rate.

As Biden heads to Europe today for the G20 summit in Rome, he urges Congress to take up the bill “as quickly as possible.” Congressional Democrats are working to finalize legislative language for the framework, which they must then pass before the President can sign the bill into law.

The framework includes the 15% corporate minimum tax on large corporations – for which legislative language was released earlier this week. The tax will apply to corporations reporting more than USD 1 billion in profits in their financial statements, with some adjustments.

After getting 135 other countries to agree to a global minimum tax earlier this month, Biden seems to have gotten 50 Democratic US Senators to sign onto it this week. The framework sticks to the terms of the OECD deal, with a 15% minimum tax rate, calculated on a country-by-country basis, on the foreign profits of US corporations. It also appears that the goal is for the change to become effective in the US consistent with the OECD deal’s timing, i.e., effective in 2023.

Also on the corporate side, corporate stock buybacks would be subject to a 1% surcharge under the framework. The measure is aimed at discouraging such stock buybacks and encouraging instead reinvesting earnings in the business and compensating workers.

The administration expects the corporate changes would raise USD 800 billion in revenue – USD 350 billion from the global minimum tax, USD 325 million from the corporate minimum tax, and USD 125 million from the stock buybacks tax.

Wealthy individuals would also see tax hikes. A surtax on income would apply to those earning USD 10 million or more – at an initial rate of 5% with an additional 3% surtax on those earning more than USD 25 million. In addition, the framework would close a Medicare tax “loophole” for the wealthy and limit business losses.

It would also invest in additional tax oversight and enforcement for the wealthiest individuals. “By increasing tax enforcement,” Treasury Secretary Yellen said in an October 28 statement, “we will begin to close the multi-trillion-dollar tax gap that deprives our country of revenue and allows those at the top to avoid paying what they owe.”

The tax changes on the wealthy are estimated to bring in USD 650 billion in revenue, while an additional USD 400 billion in additional revenue is expected from the Internal Revenue Service investments.

On the social and spending side, the framework includes childcare assistance, including two years of free preschool for three- and four-year-olds and an extension of the expanded child tax credits enacted earlier this year. It would also make substantial green investments through subsidies for consumer shifts to clean energy, incentives for renewable energy industries, and other environmental programs. In addition, the framework’s social measures would expand affordable health care coverage and investments in affordable housing.

The administration claims that revenue from the tax measures would exceed the cost of the social programs, resulting in a net decrease in the deficit.