Senators intend to make changes to provisions in 2017 law governing how companies are taxed abroad
Leading Democrats on the Senate Finance Committee on Monday proposed major changes to former President Trump’s 2017 tax reform to eliminate what they say is an incentive for companies to move operations overseas and transfer profits to tax haven countries.
Some elements of the plan proposed by Democratic Senators Ron Wyden, Sherrod Brown and Mark Warner are similar to proposals to raise corporate taxes announced last week by President Joe Biden to fund $2 trillion in U.S. infrastructure investments.
The senators intend to amend provisions in the 2017 law that govern how companies are taxed on their income abroad. The law regulates the return of deferred offshore income to companies in the United States at lower tax rates, where those profits could be invested in job creation. But in practice, Democrats said, the law created new incentives for companies to invest more overseas to be able to take advantage of the benefits.
“Many companies didn’t even return the profits. The ones that did, they spent most of their profits on stock buybacks,” Senator Warner told reporters during a conference call.
The Democrats’ plan would not repeal these taxes, but modify them to equalize their rates and bring them closer to the basic corporate rate. In addition, the plan would create new incentives for investment in research and jobs at corporate headquarters in the United States.
The proposal is likely to face strong opposition from Republicans, who have criticized Biden’s plan to scrap the Trump-era legislative advances they adopted because they put American companies at a competitive disadvantage. Fifty votes are enough to pass the necessary changes.
The proposed changes would also restore tax credits for domestic investments in clean energy and low-income communities, while adding a higher rate.
Biden’s plan includes raising the corporate tax rate from 21% to 28%, as well as approving a minimum global tax to be negotiated with other major economies.
Senator Wyden believes that such a global minimum corporate tax in Biden’s plan could work together with the reforms proposed by Democratic senators, provided Treasury Secretary Janet Yellen can get “a good multinational agreement with the Organization for Economic Cooperation and Development.”
On Monday, Yellen called for a minimum global tax during her first spring meetings with the International Monetary Fund and the World Bank as U.S. Treasury secretary.
As for the demand from fellow Democratic Senator Joe Manchin for a 25 percent corporate tax rate, Wyden, chairman of the Finance Committee, said the final rate would be the result of discussions within the Democratic caucus and committee. Wyden also said he believed all Senate Democrats would support the international tax reform proposals.