Several months after Americans went to polls on election day, concerns and questions about who will be in control of the levers of power in the Capitol Hill and White House are now settled. Biden is the 46th US president and has already assumed responsibility for the country’s tax and spending policy. So, what do people who studied CPA in Israel and other nations need to know about the Biden administration’s stand on United States tax laws?
Things are changing for corporate fillers.
During the heated 2020 presidential campaign, the Biden-Harris team made several issues clear – that the administration would roll back specific elements of the 2017 Tax Cuts & Jobs Act. Joe, Harris, and other prominent Democratic Party members perceive TCJA as tax breaks and unnecessary loopholes for high net worth individuals and corporations. Biden administration also promised to implement the right policies to spur economic growth via incentives intended to promote US-based manufacturers and support the clean energy industry.
The most significant changes in the Tax Cuts & Jobs Act celebrated by Republicans and derided by Democrats (critics) were specific amendments that reduced the tax burden on most US-based corporations. First on the priority list of Biden administration reforms are policies to roll back on these seemingly inappropriate tax breaks.
Biden-Harris team intends to raise the standard corporate tax rate at least 7 points to the pre-Tax Cuts & Jobs Act level of 28 percent. The TCJA had previously eliminated the corporate Alternative Minimum Tax, which Joe could reinstate. This would require companies with $100 million or higher in income to pay a 15 percent minimum tax or standard rate, whichever is higher.
The Biden administration has also proposed other changes to qualified business income deductions. According to the current law (set to expire on 31st Dec 2025), non-C-corporation taxpayers can deduct 20 percent of the qualified business income from qualified real estate investment trusts or pass-through entities. Biden administration is likely to phase out such deductions for entities earning more than $400,000.
Not all Biden administration’s tax policies will increase the corporate tax burden. Some elements of the proposed tax policy revolve around essential tax breaks. For instance, the proposed changes to NMTC (New Markets Tax Credits) could expand NMTC, making it a permanent program. This could potentially create a mutually beneficial situation for US businesses and communities.
Individual tax & planning
The most significant changes to individual tax rate target an upper tier of most high net worth individuals. For instance, the Biden-Harris team has proposed a 2.6 percent tax rate increase, rolling back to the pre-TCJA rate of 39.6 percent for people earning more than $400,000.
Besides, the TCJA increased the estate tax exemptions to &11.58 million and permits transfers of the appreciated estate at death to get a somewhat step-up in basis. Biden-Harris team would reinstate the relevant pre-TCJA exemptions and eliminate the step-up in basis implemented in 2020. Consequently, individuals should consider various options to max out lifetime estate exclusions. This is because Biden might also seek to eliminate breaks for most long-term dividends and capital gains for income above $1 million, rather than implementing the standard tax rates.
International taxes & planning
Entities involved in international business transactions will have their tax liability or obligations impacted by the Biden administration. During the 2020 presidential campaign, Biden proposed implementing tax penalties and breaks concerning overseas business operations and income.
There are key areas that deserve in-depth analysis when it comes to determining how the new administration will affect international tax planning.
First, there might be significant changes to the GILTI (Global Intangible Low-Taxed Income). Currently, the United States multinationals pay a foreign tax rate ranging from 10.5 percent to 13.125 percent on GILTI, with an expected increase to 16.406 percent to start in 2026. Under President Biden’s administration, this tax rate will likely be doubled to 21 percent and a minimum tax rate assessed on a nation-by-nation basis.
Biden administration’s plan to implement tax reforms are limited majorly by bipartisan concerns. It is beyond any doubt that the Republican Party fought tirelessly to implement the TCJA changes. Thus, it will require full Democratic Party support in Congressional houses to successfully implement the proposed tax reforms.