ROME — President Biden and other world leaders endorsed a landmark global agreement on Saturday that seeks to block large corporations from shifting profits and jobs across borders to avoid taxes, a showcase win for a president who has found raising corporate tax rates an easier sell with other countries than with his own party in Congress.
The announcement in the opening session of the Group of 20 summit marked the world’s most aggressive attempt yet to stop opportunistic companies like Apple and Bristol Myers Squibb from sheltering profits in so-called tax havens, where tax rates are low and corporations often maintain little physical presence beyond an official headquarters.
It is a deal years in the making, which was pushed over the line by the sustained efforts of Mr. Biden’s Treasury Department, even as the president’s plans to raise taxes in the United States for new social policy and climate change programs have fallen short of his promises.
The revenue expected from the international pact is now critical to Mr. Biden’s domestic agenda, an unexpected outcome for a president who has presented himself more as a deal maker at home rather than abroad.
end the global practice of profit-shifting, celebrated the international tax provisions this week and said they would be significant steps toward Mr. Biden’s vision of a global economy where companies invest, hire and book more profits in the United States.
But they also conceded that infighting among congressional Democrats had left Mr. Biden short of fulfilling his promise to make corporations pay their “fair share,” disappointing those who have pushed Mr. Biden to reverse lucrative tax cuts for businesses passed under Mr. Trump.
The framework omits a wide range of corporate tax increases that Mr. Biden campaigned on and pushed relentlessly in the first months of his presidency. He could not persuade 50 Senate Democrats to raise the corporate income tax rate to 28 percent from 21 percent, or even to a compromise 25 percent, or to eliminate incentives that allow some large firms — like fossil fuel producers — to reduce their tax bills.
“It’s a tiny, tiny, tiny, tiny, step,” Erica Payne, the president of a group called Patriotic Millionaires that has urged tax increases on corporations and the wealthy, said in a statement after Mr. Biden’s framework announcement on Friday. “But it’s a step.”
The Treasury Department said on Friday that even the additional enforcement money for the I.R.S. could still generate $400 billion in additional tax revenue over 10 years and said that was a “conservative” estimate.
An administration official said that the difficulty in rolling back the Trump tax cuts was the result of the fact that the Democrats are a big tent party ideologically with a very narrow majority in Congress, where a handful of moderates currently rule.
In Rome, Mr. Biden’s struggle to raise taxes more has not complicated the sealing of the international agreement. The move by the heads of state to commit to putting the deal in place by 2023 looms as the featured achievement of the summit, and Mr. Biden’s surest victory of a European swing that also includes a climate conference in Scotland next week.
Briefing reporters on Friday evening, a senior administration official, speaking on the condition of anonymity in order to preview the first day of the summit, said Biden aides were confident that world leaders were sophisticated and understood the nuances of American politics, including the challenges in passing Mr. Biden’s tax plans in Congress.
The official also said world leaders see the tax deal as reshaping the rules of the global economy.
The international tax agreement represented a significant achievement of economic diplomacy for Mr. Biden and Ms. Yellen, who dedicated much of her first year on the job to reviving negotiations that stalled during the Trump administration. To show that the United States was serious about a deal, she abandoned a provision that would have made it optional for American companies to pay new taxes to foreign countries and backed away from an initial demand for a global minimum tax of 21 percent.
For months, Ms. Yellen cajoled Ireland’s finance minister, Paschal Donohoe, to back the agreement, which would require Ireland to raise its 12.5 percent corporate tax rate — the centerpiece of its economic model to attract foreign investment. Ultimately, through a mix of pressure and pep talks, Ireland relented, removing a final obstacle that could have prevented the European Union from ratifying the agreement.
Some progressives in the United States say that Mr. Biden’s ability to follow through on his end of the bargain was a crucial piece of the framework spending bill.
“The international corporate reforms are the most important,” said Seth Hanlon, a senior fellow at the liberal Center for American Progress, who specializes in tax policy, “because they are linked to the broader multilateral effort to stop the corporate race to the bottom. It’s so important for Congress to act this year to give that effort momentum.”
Jim Tankersley reported from Rome, and Alan Rappeport from Washington.
“I fully complied with Treasury Department conflicts rules by not meeting with PwC representatives” during a two-year “cooling off” period that restricts government officials from meeting with their former employers, Mr. Harter said. Although he was involved in the construction of the offshore tax break and met with corporate lobbyists, Mr. Harter said he did not recall meeting with Ms. Olson or other PwC officials on the topic.
Ms. Olson referred questions to PwC.
An Inside Track
The 2017 tax overhaul included a provision that let some people take a 20 percent tax deduction on certain types of business income. But the law — known as Section 199A — largely excluded an undefined category of “brokerage services.” In 2018, lobbyists for several industries, including real estate and insurance, visited the Treasury to try to persuade officials that the broker prohibition should not apply to them.
On Aug. 1, records show, Ms. Ellis met with her former PwC colleague, Mr. Feuerstein, and three other lobbyists for his client, the National Association of Realtors. They wanted real estate brokers to qualify for the 20 percent deduction.
The meeting took place before the first draft of the proposed rules was even made public, which meant that, right off the bat, Ms. Ellis’s former PwC colleague and his client had an inside track.
When the Treasury published its first version of the proposed rules a week later, real estate brokers were eligible. The National Association of Realtors took credit for the victory on its website. (The final rules applied only to brokers of stocks and other securities.)
Ms. Ellis’s meeting with Mr. Feuerstein appeared to violate a federal ethics rule that restricts government officials from meeting with their former private sector colleagues, said Don Fox, the acting director of the Office of Government Ethics during the Obama administration and, before that, a lawyer in Republican and Democratic administrations.
Mr. Fox described the meeting as improper. “It certainly is going to call into question how that regulation was drafted,” he said. “There’s no way to undo the taint that is now going to be attached to that.”
There were two weeks left in the Trump administration when the Treasury Department handed down a set of rules governing an obscure corner of the tax code.
Overseen by a senior Treasury official whose previous job involved helping the wealthy avoid taxes, the new regulations represented a major victory for private equity firms. They ensured that executives in the $4.5 trillion industry, whose leaders often measure their yearly pay in eight or nine figures, could avoid paying hundreds of millions in taxes.
The rules were approved on Jan. 5, the day before the riot at the U.S. Capitol. Hardly anyone noticed.
The Trump administration’s farewell gift to the buyout industry was part of a pattern that has spanned Republican and Democratic presidencies and Congresses: Private equity has conquered the American tax system.
one recent estimate, the United States loses $75 billion a year from investors in partnerships failing to report their income accurately — at least some of which would probably be recovered if the I.R.S. conducted more audits. That’s enough to roughly double annual federal spending on education.
It is also a dramatic understatement of the true cost. It doesn’t include the ever-changing array of maneuvers — often skating the edge of the law — that private equity firms have devised to help their managers avoid income taxes on the roughly $120 billion the industry pays its executives each year.
Private equity’s ability to vanquish the I.R.S., Treasury and Congress goes a long way toward explaining the deep inequities in the U.S. tax system. When it comes to bankrolling the federal government, the richest of America’s rich — many of them hailing from the private equity industry — play by an entirely different set of rules than everyone else.
The result is that men like Blackstone Group’s chief executive, Stephen A. Schwarzman, who earned more than $610 million last year, can pay federal taxes at rates similar to the average American.
Lawmakers have periodically tried to force private equity to pay more, and the Biden administration has proposed a series of reforms, including enlarging the I.R.S.’s enforcement budget and closing loopholes. The push for reform gained new momentum after ProPublica’s recent revelation that some of America’s richest men paid little or no federal taxes.
nearly $600 million in campaign contributions over the last decade, has repeatedly derailed past efforts to increase its tax burden.
Taylor Swift’s back music catalog.
The industry makes money in two main ways. Firms typically charge their investors a management fee of 2 percent of their assets. And they keep 20 percent of future profits that their investments generate.
That slice of future profits is known as “carried interest.” The term dates at least to the Renaissance. Italian ship captains were compensated in part with an interest in whatever profits were realized on the cargo they carried.
The I.R.S. has long allowed the industry to treat the money it makes from carried interests as capital gains, rather than as ordinary income.
article highlighting the inequity of the tax treatment. It prompted lawmakers from both parties to try to close the so-called carried interest loophole. The on-again, off-again campaign has continued ever since.
Whenever legislation gathers momentum, the private equity industry — joined by real estate, venture capital and other sectors that rely on partnerships — has pumped up campaign contributions and dispatched top executives to Capitol Hill. One bill after another has died, generally without a vote.
An Unexpected Email
One day in 2011, Gregg Polsky, then a professor of tax law at the University of North Carolina, received an out-of-the-blue email. It was from a lawyer for a former private equity executive. The executive had filed a whistle-blower claim with the I.R.S. alleging that their old firm was using illegal tactics to avoid taxes.
The whistle-blower wanted Mr. Polsky’s advice.
Mr. Polsky had previously served as the I.R.S.’s “professor in residence,” and in that role he had developed an expertise in how private equity firms’ vast profits were taxed. Back in academia, he had published a research paper detailing a little-known but pervasive industry tax-dodging technique.
$89 billion in private equity assets — as being “abusive” and a “thinly disguised way of paying the management company its quarterly paycheck.”
Apollo said in a statement that the company stopped using fee waivers in 2012 and is “not aware of any I.R.S. inquiries involving the firm’s use of fee waivers.”
floated the idea of cracking down on carried interest.
Private equity firms mobilized. Blackstone’s lobbying spending increased by nearly a third that year, to $8.5 million. (Matt Anderson, a Blackstone spokesman, said the company’s senior executives “are among the largest individual taxpayers in the country.” He wouldn’t disclose Mr. Schwarzman’s tax rate but said the firm never used fee waivers.)
Lawmakers got cold feet. The initiative fizzled.
In 2015, the Obama administration took a more modest approach. The Treasury Department issued regulations that barred certain types of especially aggressive fee waivers.
But by spelling that out, the new rules codified the legitimacy of fee waivers in general, which until that point many experts had viewed as abusive on their face.
So did his predecessor in the Obama administration, Timothy F. Geithner.
Inside the I.R.S. — which lost about one-third of its agents and officers from 2008 to 2018 — many viewed private equity’s webs of interlocking partnerships as designed to befuddle auditors and dodge taxes.
One I.R.S. agent complained that “income is pushed down so many tiers, you are never able to find out where the real problems or duplication of deductions exist,” according to a U.S. Government Accountability Office investigation of partnerships in 2014. Another agent said the purpose of large partnerships seemed to be making “it difficult to identify income sources and tax shelters.”
The Times reviewed 10 years of annual reports filed by the five largest publicly traded private equity firms. They contained no trace of the firms ever having to pay the I.R.S. extra money, and they referred to only minor audits that they said were unlikely to affect their finances.
Current and former I.R.S. officials said in interviews that such audits generally involved issues like firms’ accounting for travel costs, rather than major reckonings over their taxable profits. The officials said they were unaware of any recent significant audits of private equity firms.
No Money Owed
For a while, it looked as if there would be an exception to this general rule: the I.R.S.’s reviews of the fee waivers spurred by the whistle-blower claims. But it soon became clear that the effort lacked teeth.
Kat Gregor, a tax lawyer at the law firm Ropes & Gray, said the I.R.S. had challenged fee waivers used by four of her clients, whom she wouldn’t identify. The auditors struck her as untrained in the thicket of tax laws governing partnerships.
“It’s the equivalent of picking someone who was used to conducting an interview in English and tell them to go do it in Spanish,” Ms. Gregor said.
The audits of her clients wrapped up in late 2019. None owed any money.
The Mnuchin Compromise
As a presidential candidate, Mr. Trump vowed to “eliminate the carried interest deduction, well-known deduction, and other special-interest loopholes that have been so good for Wall Street investors, and for people like me, but unfair to American workers.”
wanted to close the loophole, congressional Republicans resisted. Instead, they embraced a much milder measure: requiring private equity officials to hold their investments for at least three years before reaping preferential tax treatment on their carried interests. Steven Mnuchin, the Treasury secretary, who had previously run an investment partnership, signed off.
McKinsey, typically holds investments for more than five years. The measure, part of a $1.5 trillion package of tax cuts, was projected to generate $1 billion in revenue over a decade.
credited Mr. Mnuchin, hailing him as “an all-star.”
Mr. Fleischer, who a decade earlier had raised alarms about carried interest, said the measure “was structured by industry to appear to do something while affecting as few as possible.”
Months later, Mr. Callas joined the law and lobbying firm Steptoe & Johnson. The private equity giant Carlyle is one of his biggest clients.
‘The Government Caved’
It took the Treasury Department more than two years to propose rules spelling out the fine print of the 2017 law. The Treasury’s suggested language was strict. One proposal would have empowered I.R.S. auditors to more closely examine internal transactions that private equity firms might use to get around the law’s three-year holding period.
The industry, so happy with the tepid 2017 law, was up in arms over the tough rules the Treasury’s staff was now proposing. In a letter in October 2020, the American Investment Council, led by Drew Maloney, a former aide to Mr. Mnuchin, noted how private equity had invested in hundreds of companies during the coronavirus pandemic and said the Treasury’s overzealous approach would harm the industry.
The rules were the responsibility of Treasury’s top tax official, David Kautter. He previously was the national tax director at EY, formerly Ernst & Young, when the firm was marketing illegal tax shelters that led to a federal criminal investigation and a $123 million settlement. (Mr. Kautter has denied being involved with selling the shelters but has expressed regret about not speaking up about them.)
On his watch at Treasury, the rules under development began getting softer, including when it came to the three-year holding period.
Monte Jackel, a former I.R.S. attorney who worked on the original version of the proposed regulations.
Mr. Mnuchin, back in the private sector, is starting an investment fund that could benefit from his department’s weaker rules.
A Charmed March
Even during the pandemic, the charmed march of private equity continued.
The top five publicly traded firms reported net profits last year of $8.6 billion. They paid their executives $8.3 billion. In addition to Mr. Schwarzman’s $610 million, the co-founders of KKR each made about $90 million, and Apollo’s Leon Black received $211 million, according to Equilar, an executive compensation consulting firm.
now advising clients on techniques to circumvent the three-year holding period.
The most popular is known as a “carry waiver.” It enables private equity managers to hold their carried interests for less than three years without paying higher tax rates. The technique is complicated, but it involves temporarily moving money into other investment vehicles. That provides the industry with greater flexibility to buy and sell things whenever it wants, without triggering a higher tax rate.
Private equity firms don’t broadcast this. But there are clues. In a recent presentation to a Pennsylvania retirement system by Hellman & Friedman, the California private equity giant included a string of disclaimers in small font. The last one flagged the firm’s use of carry waivers.
The Biden administration is negotiating its tax overhaul agenda with Republicans, who have aired advertisements attacking the proposal to increase the I.R.S.’s budget. The White House is already backing down from some of its most ambitious proposals.
Even if the agency’s budget were significantly expanded, veterans of the I.R.S. doubt it would make much difference when it comes to scrutinizing complex partnerships.
“If the I.R.S. started staffing up now, it would take them at least a decade to catch up,” Mr. Jackel said. “They don’t have enough I.R.S. agents with enough knowledge to know what they are looking at. They areso grossly overmatched it’s not funny.”
“Ultimately, his political standing is judged by the health and well-being of the economy,” said Josh Holmes, a political adviser to Senator Mitch McConnell of Kentucky, the Republican leader. “What he’s talking about from a tax perspective is administration-assisted suicide.”
Today in Business
But Mr. Holmes agreed that, at least in the short term, Mr. Biden was making a winning political calculation. “He’s right that corporate tax increases are not unpopular,” Mr. Holmes said. But the political calculus for Republicans is that the policies themselves will prove unpopular with American voters by the midterm elections because of their effect on workers and the economy, he said.
Independent forecasters largely expect the economy to boom this year as the country reopens widely for economic activity on the strength of Covid-19 vaccinations. Analyses vary on how Mr. Biden’s $4 trillion agenda could affect that. Analysts at the Penn Wharton Budget Model predict the tax increases would hurt growth, on balance. Wells Fargo forecasters wrote this week that Mr. Biden’s infrastructure package, including the corporate tax increases that would fund it, would increase growth in the coming years.
The fight in Washington over Mr. Biden’s plans is a continuation of a battle that began under President Donald J. Trump, who signed a $1.5 trillion tax cut package into law in 2017. Democrats successfully portrayed the cuts as benefiting the rich, and they never reached the kind of public popularity that Republican leaders envisioned. Republicans largely abandoned plans to focus on the tax cuts during the 2018 midterm election campaigns.
“There were far more Democratic ads about it than there were Republican ads,” said Geoff Garin, a Democratic pollster.
In many ways, those tax cuts have given Mr. Biden an opportunity, Mr. Garin said.
“When Biden talks about the corporate tax rate, he frames it in the context of rolling back the 2017 corporate tax cut as opposed to an out-of-the-blue increase on corporations,” he said. “It’s clear from polling that when you provide the context of the 2017 corporate tax cut, which most voters feel was excessive and wasteful, support for the Biden proposal goes even higher.”
White House officials also cite the 2017 law in explaining their aggressive stance on the tax issue. “The pandemic laid bare huge inequalities in this country,” said Anita Dunn, a senior White House adviser. “Even before, the 2017 tax cut was very unpopular.”
“I think it’s a giveaway to the rich,” she told reporters last month. “So, I do not believe in holding the entire infrastructure package hostage for a full repeal and abolishing the cap. I think we can have a conversation about the policy, but it’s a bit of an extreme position, to be frank.”
There’s no debate that the SALT deduction goes mostly to wealthier taxpayers. About 85 percent of its benefits accrue to the richest 5 percent of households, according to an analysis by the Institute on Taxation and Economic Policy in Washington. Were the cap to be repealed, about two-thirds of the benefits — about $67 billion — would go to families making over $200,000 a year.
Exactly how that is distributed is subject to an overlapping crosscurrent of tax policies whose effects vary from place to place. Since the 2017 tax cut broadly lowered taxes, even for residents of high-tax states, the $10,000 cap meant that affluent people in blue states ended up with smaller tax cuts than those in lower-cost red states.
But the political bottom line is that capping a very visible benefit angered the sorts of voters on whom high-tax states rely — families in a place like Long Island or Orange County, Calif., who might make a six-figure income, own a home and pay tens of thousands a year in state income and local property taxes. In the psychology of paying taxes, a slightly smaller savings might seem worse than no savings at all, particularly if you feel singled out, as blue state taxpayers clearly were.
Giveaway or not, there is political logic in trying to restore the unlimited benefit. Affluent suburban voters helped Mr. Biden win the White House, and there is even some evidence to suggest that anger over the lost deduction helped Democrats flip a handful of Republican seats during the 2018 election.
Though the debate affects Democratic districts disproportionately, SALT is less about rote partisanship than about representing voters from wealthy areas with high housing costs. The handful of Republicans who voted against the 2017 tax cuts mostly did so because of the loss of tax breaks like SALT, and today Representative Young Kim, a California Republican from Orange County, supports a repeal of the cap.
There’s also little doubt that the cap falls much harder on blue states. Before the 2017 tax cuts, the average SALT deduction in New York was $22,169 — twice the national average of $10,233 — according to data compiled by the Government Finance Officers Association. It was $19,664 in Connecticut, $18,437 in California and $17,850 in New Jersey.
WASHINGTON — The Biden administration unveiled a tax plan on Wednesdaythat would increase the corporate tax rate in the U.S. and limit the ability of American firms to avoid taxes by shifting profits overseas.
Much of the plan is aimed at reversing a deep reduction in corporate taxes under President Donald J. Trump. A 2017 tax bill slashed the corporate rate to 21 percent from 35 percent and enacted a series of other provisions that the Biden administration says have encouraged firms to shift profits to lower-tax jurisdictions, like Ireland.
Some of the provisions in President Biden’s plan can be enacted by the Treasury Department, but many will require the approval of Congress. Already, Republicans have panned the proposals as putting the U.S. at a disadvantage, while some moderate Democrats have indicated they may also want to see some adjustments, particularly to the proposed 28 percent corporate tax rate.
Administration officials estimate the proposals will raise a total of $2.5 trillion in new tax revenue over a 15 year span. Analysts at the University of Pennsylvania’s Penn Wharton Budget Model put the estimate even higher, estimating a 10-year increase of $2.1 trillion, with about half the money coming from the plan’s various changes to the taxation of multinational corporations.
Organization for Economic Cooperation and Development.
The administration sees raising the rate as a way to increase corporate tax receipts, which have plunged to match their lowest levels as a share of the economy since World War II.
Ensure big firms pay at least 15 percent in taxes
Many large companies pay far less than the current tax rate of 21 percent — and sometimes nothing. Tax code provisions allow firms to reduce their liability through deductions, exemptions, offshoring and other mechanisms.
The Biden plan seeks to put an end to big companies incurring zero federal tax liability and paying no or negative taxes to the U.S. government.
the so-called global intangible low-taxed income (or GILTI) tax to 21 percent, which would narrow the gap between what companies pay on overseas profits and what they pay on earned income in the U.S.
And it would calculate the GILTI tax on a per-country basis, which would have the effect of subjecting more income earned overseas to the tax than under the current system.
Punish U.S. companies that headquarter in low-tax countries
A provision in the plan known as SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments) is an attempt to discourage American companies from moving their headquarters abroad for tax purposes, particularly through the practice known as “inversions,” where companies from different countries merge, creating a new foreign firm.
Under current law, companies with headquarters in Ireland can “strip” some of the profits earned by subsidiaries in the United States and send them back to the Ireland company as payment for things like the use of intellectual property, then deduct those payments from their American income taxes. The SHIELD plan would disallow those deductions for companies based in low-tax countries.
Push for a global agreement to end profit shifting
The Biden administration wants other countries to raise their corporate tax rates, too.
The tax plan emphasizes that the Treasury Department will continue to push for global coordination on an international tax rate that would apply to multinational corporations regardless of where they locate their headquarters. Such a global tax could help prevent the type of “race to the bottom” that has been underway, Treasury Secretary Janet Yellen has said, referring to countries trying to outdo one another by lowering tax rates in order to attract business.
Republican critics of the Biden tax plan have argued that the administration’s focus on a global minimum tax is evidence that it realizes that raising the U.S. corporate tax rate unilaterally would make American businesses less competitive around the world.
Replace fossil fuel tax subsidies with clean-energy incentives
The president’s plan would strip away longstanding subsidies for oil, gas and other fossil fuels and replace them with incentives for clean energy. The provisions are part of Mr. Biden’s efforts to transition the U.S. to “100 percent carbon pollution-free electricity” by 2035.
The plan includes a tax incentive for long-distance transmission lines, would expand incentives for electricity storage projects and would extend other existing clean-energy tax credits.
A Treasury Department report estimated that eliminating subsidies for fossil fuel companies would increase government tax receipts by over $35 billion in the coming decade.
“The main impact would be on oil and gas company profits,” the report said. “Research suggests little impact on gasoline or energy prices for U.S. consumers and little impact on our energy security.”
Doing away with fossil fuel subsidies has been tried before, with little success given both industry and congressional opposition.
Beef up the Internal Revenue Service
The Internal Revenue Service has struggled with budget cuts and slim resources for years. The Biden administration believes better funding for the tax collection agency is an investment that will more than pay for itself. The plan released on Wednesday includes proposals to bolster the I.R.S. budget so it can hire experts to pursue large corporations and ensure they are paying what they owe.
The Treasury Department, which oversees the I.R.S., noted in its report that the agency’s enforcement budget has fallen by 25 percent over the last decade and that it is poorly equipped to audit complex corporate filings. The agency is also unable to afford engaging in or sustaining multiyear litigation over complex tax disputes, Treasury said.
As a result of those constraints, the I.R.S. tends to focus on smaller targets while big companies and the wealthiest taxpayers are able to find ways to reduce their tax bills.
WASHINGTON — Large companies like Apple and Bristol Myers Squibb have long employed complicated maneuvers to reduce or eliminate their tax bills by shifting income on paper between countries. The strategy has enriched accountants and shareholders, while driving down corporate tax receipts for the federal government.
President Biden sees ending that practice as central to his $2 trillion infrastructure package, pushing changes to the tax code that his administration says will ensure American companies are contributing tax dollars to help invest in the country’s roads, bridges, water pipes and other parts of his economic agenda.
On Wednesday, the Treasury Department released the details of Mr. Biden’s tax plan, which aims to raise as much as $2.5 trillion over 15 years to help finance the infrastructure proposal. That includes bumping the corporate tax rate to 28 percent from 21 percent, imposing a strict new minimum tax on global profits and levying harsh penalties on companies that try to move profits offshore.
The plan also aims to stop big companies that are profitable but have no federal income tax liability from paying no taxes to the Treasury Department by imposing a 15 percent tax on the profits they report to investors. Such a change would affect about 45 corporations, according to the Biden administration’s estimates, because it would be limited to companies earning $2 billion or more per year.
President Donald J. Trump’s 2017 tax cuts. Biden administration officials say that law increased the incentives for companies to shift profits to lower-tax countries, while reducing corporate tax receipts in the United States to match their lowest levels as a share of the economy since World War II.
Treasury Secretary Janet L. Yellen, in rolling out the plan, said it would end a global “race to the bottom” of corporate taxation that has been destructive for the American economy and its workers.
“Our tax revenues are already at their lowest level in generations,” Ms. Yellen said. “If they continue to drop lower, we will have less money to invest in roads, bridges, broadband and R&D.”
The plan, while ambitious, will not be easy to enact.
Some of the proposals, like certain changes to how a global minimum tax is applied to corporate income, could possibly be put in place by the Treasury Department via regulation. But most will need the approval of Congress, including increasing the corporate tax rate. Given Democrats’ narrow majority in both the Senate and the House, that proposed rate could drop. Already, Senator Joe Manchin III of West Virginia, a crucial swing vote, has said he would prefer a 25 percent corporate rate.
search of the lowest possible tax bill.
Companies also shift jobs and investments between countries, but often for different reasons. In many cases, they are following lower labor costs or seeking customers in new markets to expand their businesses. The Biden plan would create new tax incentives for companies to invest in production and research in the United States.
weakened by subsequent regulations issued by Mr. Trump’s Treasury Department.
Conservative tax experts, including several involved in writing the 2017 law, say they have seen no evidence of the law enticing companies to move jobs overseas. Mr. Biden has assembled a team of tax officials who contend the provisions have given companies new incentives to move investment and profits offshore.
Mr. Biden’s plan would raise the rate of Mr. Trump’s minimum tax and apply it more broadly to income that American companies earn overseas. Those efforts would try to make it less appealing for companies to book profits in lower-tax companies.
The S.H.I.E.L.D. proposal is an attempt to discourage American companies from moving their headquarters abroad for tax purposes, particularly through the practice known as “inversions,” where companies from different countries merge, creating a new foreign-located firm.
Under current law, companies with headquarters in Ireland can “strip” some of their profits earned by subsidiaries in the United States and send them back to the Ireland company as payments for things like the use of intellectual property, then deduct those payments from their American income taxes. The S.H.I.E.L.D. plan would disallow those deductions for companies based in low-tax countries.
Tax professionals say Mr. Biden’s proposed changes to that law could be difficult to administer. Business groups say they could hamper American companies as they compete on a global scale.
Republicans denounced the plan as bad for the United States economy, with lawmakers on the House Ways and Means Committee saying that “their massive tax hikes will be shouldered by American workers and small businesses.”
coupled with an effort through the Organization for Economic Cooperation and Development to broker a global agreement on minimum corporate taxation, will start a worldwide revolution in how and where companies are taxed. That is in part because the Biden plans include measures meant to force other countries to go along with a new global minimum tax that Ms. Yellen announced support for on Monday.
Treasury Department officials estimate in their report that the proposed changes to the minimum tax, and the implementation of the S.H.I.E.L.D. plan, would raise an estimated $700 billion over 10 years on their own.
Business groups warn the administration’s efforts will hamstring American companies, and they have urged Mr. Biden to wait for the international negotiations to play out before following through with any changes.
Members of the Business Roundtable, which represents corporate chief executives in Washington, said this week that Mr. Biden’s minimum tax “threatens to subject the U.S. to a major competitive disadvantage.” They urged the administration to first secure a global agreement, adding that “any U.S. minimum tax should be aligned with that agreed upon global level.”
However, some companies expressed an openness on Wednesday to some of the changes.
John Zimmer, the president and a founder of Lyft, told CNN that he supported Mr. Biden’s proposed 28 percent corporate tax rate.
“I think it’s important to make investments again in the country and the economy,” Mr. Zimmer said. “And as the economy grows, so too does jobs and so too does people’s needs to get around.”
Just as the Biden administration is pushing to raise taxes on corporations, a new study finds that at least 55 of America’s largest paid no taxes last year on billions of dollars in profits.
The sweeping tax bill passed in 2017 by a Republican Congress and signed into law by President Donald J. Trump reduced the corporate tax rate to 21 percent from 35 percent. But dozens of Fortune 500 companies were able to further shrink their tax bill — sometimes to zero — thanks to a range of legal deductions and exemptions that have become staples of the tax code, according to the analysis.
Salesforce, Archer-Daniels-Midland and Consolidated Edison were among those named in the report, which was done by the Institute on Taxation and Economic Policy, a left-leaning research group in Washington.
financial reports that include federal income tax expense. The institute used that data along with other information supplied by each company on its pretax income.
Catherine Butler, a spokeswoman for Duke Energy, responded in an email that the company “fully complies with federal and state tax laws as part of our efforts to make investments that will benefit our customers and communities.”
She pointed out that the bonus depreciation, intended to encourage investment in areas like renewable energy, “caused Duke’s cash tax obligations to be deferred to future periods, but it did not eliminate them.” According to a filing at the end of 2020, Duke has a deferred federal tax balance of $9 billion that will be paid in the future.
DTE Energy, a Detroit-based utility that was also found to have paid no federal taxes for three years, said major investments in modernizing aging infrastructure and new solar and wind technologies were the primary reasons last year. “For utilities, the benefit of these federal tax savings are passed on to utility customers in the form of lower utility bills,” it said in a statement.
Democratic candidates citing it to argue the tax code was deeply flawed.
Tax avoidance strategies include a mix of old standards and new innovations. Companies, for example, saved billions by allowing top executives to buy discounted stock options in the future and then deducting their value as a loss.
The Biden administration announced this week that it planned to increase the corporate tax rate to 28 percent, and establish a kind of minimum tax that would limit the number of zero-payers. The White House estimated that the revisions would raise $2 trillion over 15 years, which will be used to fund the president’s ambitious infrastructure plan.
Supporters say that in addition to yielding revenue, the rewrite would help make the tax code more equitable, requiring individuals and companies at the top of the income ladder to pay more. But Republicans have signaled that the tax increases in the Biden proposal — which Senator Mitch McConnell of Kentucky, the minority leader, called “massive” — will preclude bipartisan support.
Referring to the proposed revisions, Matt Gardner, a senior fellow at the taxation institute, said, “If I were going to make a list of the things I would want the corporate tax reform to do, this outline tackles all these issues.”
Deductions and exemptions wouldn’t disappear, but other changes like the minimum tax would reduce their value, he said.
WASHINGTON — Senior Democrats on Monday proposed a tax increase that could partly finance President Biden’s plans to pour trillions of dollars into infrastructure and other new government programs, as party leaders weighed an aggressive strategy to force his spending proposals through Congress over unified Republican opposition.
The moves were the start of a complex effort by Mr. Biden’s allies on Capitol Hill to pave the way for another huge tranche of federal spending after the $1.9 trillion stimulus package that was enacted this month. The president is set to announce this week the details of his budget, including his much-anticipated infrastructure plan.
He is scheduled to travel to Pittsburgh on Wednesday to describe the first half of a “Build Back Better” proposal that aides say will include a total of $3 trillion in new spending and up to an additional $1 trillion in tax credits and other incentives.
Yet with Republicans showing early opposition to such a large plan and some Democrats resisting key details, the proposals will be more difficult to enact than the pandemic aid package, which Democrats muscled through the House and Senate on party-line votes.
afford to lose only eight votes, Representative Tom Suozzi, Democrat of New York, warned that he would not support the president’s plan unless it eliminated a rule that prevents taxpayers from deducting more than $10,000 in local and state taxes from their federal income taxes. He is one of a handful of House Democrats who are calling on the president to repeal the provision.
And in the Senate, where most major legislation requires 60 votes to advance, Senator Chuck Schumer of New York, the majority leader, was exploring an unusual maneuver that could allow Democrats to once again use reconciliation — the fast-track budget process they used for the stimulus plan — to steer his spending plans through Congress in the next few months even if Republicans are unanimously opposed.
While an aide to Mr. Schumer said a final decision had not been made to pursue such a strategy, the prospect, discussed on the condition of anonymity, underscored the lengths to which Democrats were willing to go to push through Mr. Biden’s agenda.
The president’s initiatives will feature money for traditional infrastructure projects like rebuilding roads, bridges and water systems; spending to advance a transition to a lower-carbon energy system, like electric vehicle charging stations and the construction of energy-efficient buildings; investments in emerging industries like advanced batteries; education efforts like free community college and universal prekindergarten; and measures to help women work and earn more, like increased support for child care.
The proposals are expected to be partly offset by a wide range of tax increases on corporations and high earners.
would have temporarily removed the cap, but it stalled in the Senate and attempts to include it in pandemic relief legislation were unsuccessful.
“It has to be elevated as part of the conversation,” Mr. Suozzi said. “There’s a lot of different talk about going big and going bold and making significant changes to the tax code. I want to make SALT part of the conversation.”
Frequently Asked Questions About the New Stimulus Package
The stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.
Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more
This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.
There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.
The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.
He is among the Democrats who have requested a meeting with Mr. Biden to discuss repealing the cap, according to a letter obtained by The New York Times.
“No SALT, no dice,” declared another Democrat, Representative Josh Gottheimer of New Jersey.
“There’s plenty of ways, in my opinion, to raise revenue and reinstate SALT,” he said in an interview, adding that he wanted to see the full details of the proposal.
budget blueprint that was approved last month to include the infrastructure plan, which would enable them to undertake a second reconciliation process before the end of the fiscal year on Sept. 30 and pass it with a simple majority.
Elizabeth MacDonough, the parliamentarian, will have to issue guidance on whether doing so is permissible under Senate rules.
If Democrats succeed, they could potentially use the reconciliation maneuver at least two more times this calendar year to push through more of Mr. Biden’s agenda.
Many liberal economists say there are good reasons to raise taxes, starting with using those funds to invest in workers and help build economic opportunity. Spending on physical infrastructure, like roads and water pipes, or on programs like education and child care that are meant to help people earn more money could help curb persistent inequalities in income and wealth. The economists also say that tax increases that are properly set up would provide incentives for multinational companies to keep jobs in the United States and not shift profits to lower-tax foreign countries.
“The purpose of the tax system is to both raise enough revenue for what the government wants to do, and to make sure that as we’re doing that we are encouraging activities that are in the national interest and discouraging ones that are not,” said Heather Boushey, a member of the White House’s Council of Economic Advisers.
Key Democrats are trying to bring the party to consensus. The top tax writer in the Senate, Ron Wyden of Oregon, is drafting a series of bills to raise taxes, many of them overlapping with Mr. Biden’s campaign proposals.
“I’ll be ready to raise what the Democratic caucus decides is required to move forward,” Mr. Wyden, the chairman of the Senate Finance Committee, said in an interview.
Mr. Wyden’s plans include big changes to the portions of Mr. Trump’s tax cuts that overhauled how the United States taxes multinational companies, including the creation of a minimum tax of sorts on income earned abroad. Mr. Wyden and many Democratic economists, including some inside the Biden administration, say that the tax was devised in a way that it ultimately incentivized companies to continue moving profits and activities offshore to avoid American taxes. Republican economists and some tax experts disagree and say the law has allowed U.S. companies to better compete globally.
A report from the congressional Joint Committee on Taxation this month showed that multinational companies paid an average U.S. tax rate of less than 8 percent on their income in 2018, down from 16 percent in 2017. The report also found that those companies did not slow their practice of booking profits in low-tax havens like Bermuda.
Mr. Biden, Mr. Wyden and Mr. Sanders have all drafted plans to raise revenues by amending the 2017 law to force multinational companies to pay more to the United States. One of the most lucrative ways to do that, according to tax scorekeepers, would be to increase the rate of the global minimum tax, forcing those companies to pay higher U.S. tax rates no matter where they locate jobs or profits.