Revising the Draft Ways & Means International Tax Plan Can Provide Necessary Revenues and Increase American Competitiveness
WASHINGTON, DC – The Financial Accountability and Corporate Transparency (FACT) Coalition urges the House Ways & Means Committee to make critical revisions to its draft Committee Tax Plan (the “Plan”) to help curb tax-haven abuse, protect American jobs, and begin to meet the challenge set by the Biden Administration to end the international race to the bottom in corporate tax collections. At present, the Plan does not remove–and may actually worsen–incentives from the 2017 Tax Cuts and Jobs Act to offshore investment, related jobs, and profits. Specifically, revisions should be made by Congress to the Plan that would:
- Increase the effective GILTI Rate. The Plan would widen the gap between domestic and foreign tax rates instead of narrowing it in absolute terms, per the below:
|Current Law||Current Law After 2025||W+M Plan||President Biden’s Plan|
|Domestic tax rate||21.00%||21%||26.50%||28.00%|
|Foreign Effective Tax Rate (equal to, GILTI Rate / FTC Limit) ||13.125%||16.41%||17.37%||26.25%|
|Difference between Domestic and Foreign Effective Tax Rate||7.875%||4.594%||9.13%||1.75%|
This could increase tax havens abuse and jobs offshoring and shifts the tax burden onto small businesses and individuals. The Plan should be revised to increase the Global Intangible Low-Taxed Income (GILTI) rate to at least 21 percent in line with President Biden’s recommended reforms, and multinational corporations should continue to be limited in utilizing only 80 percent of foreign tax credits based on the significant amounts of foreign income that are deducted under the Plan’s GILTI approach. The flawed “QBAI” exemption under the GILTI regime, which exempts foreign income from U.S. taxation for investing in assets offshore, is also maintained in the Plan, albeit at a reduced rate from 10 percent to 5 percent. This encourages off-shore asset investment, and with it, offshoring of jobs. It should also be removed entirely, in line with the President’s plan and the Senate Finance framework. Equalization of tax rates on foreign and domestic profits is critical tax policy to attract investment in the United States and create American jobs.
- Remove Unnecessary Additional Foreign Profit Advantages under GILTI. Among other corporate-favorable provisions, the Plan explicitly does not require the allocation of U.S. shareholder deductions, including for interest, R&D or other overhead, for foreign tax credit purposes, instead requiring only allocation of “directly allocable” expenses. The Plan also creates a more valuable GILTI (and FDII) deduction by removing any income limitation on these deductions and allowing them to be carried into net operating loss. There is no reason to increase the already inappropriately high incentive to offshore investment and profits through these taxpayer friendly provisions.
- Eliminate FDII. The Plan maintains the deduction for foreign-derived intangible income (FDII). FDII is ineffective and discriminatory against businesses that provide domestic goods and services. It also directly encourages offshore asset investment, and it is problematic with respect to international trade. It should be eliminated entirely.
- Strengthen Anti Base-Erosion Measures. The Plan takes a step forward in revising currently flawed anti base-erosion provisions in line with the President’s Stopping Harmful Inversions and Ending Low-Tax Development (SHIELD) proposal, but it does not go far enough. At a minimum, the rate for base-eroding payments should immediately be raised to the GILTI rate. A 12.5% BEAT rate (increasing to 15% in 2026) continues to provide a weak disincentive for profit-shifting and may not align with an eventual OECD agreement for a global minimum tax; particularly, if the U.S. is successful in increasing the global minimum corporate tax rate above 15 percent, as it should be trying to do.
- Include Missing Anti-Inversion Provisions. The Plan is missing Anti-inversion provisions included in President Biden’s proposals that would permanently end the inappropriate practice of avoiding U.S. taxes by merging with smaller foreign companies. These should be included.
- Include Missing Public Reporting Requirements. The Plan makes an encouraging change in applying the GILTI on a country-by-country basis, as opposed to allowing international aggregation in GILTI which encouraged additional profit-shifting. In connection with these changes, large taxpayers should publicly report information already provided to the IRS under OECD agreement to facilitate corporate accountability and compliance for the benefit of investors that need to understand capital allocation risks associated with these changes and policy-makers and citizens that need to understand whether GILTI changes under the Plan are being implemented as intended.
“As FACT has previously noted, this process presents an historic opportunity, complemented by a potential agreement at the OECD level, to reform the international tax system consistent with overwhelming voter demands,” said Ian Gary, the Executive Director of the FACT Coalition. “By taking bold action now, Congress can curb multinational corporate tax avoidance which starves governments around the world of the revenues they need to address economic inequality, global pandemics, and the climate crisis.”
The reforms proposed by FACT, in line with President Biden’s proposals, and our prior comments to the strong international tax framework put forward by the Senate Finance Committee, can add serious revenue to fund the admirable work done so far by the Ways & Means Committee to invest in our communities and America’s working families. For example, the Plan’s international tax revisions have been scored to raise around $330 billion total. In contrast, President Biden’s international corporate tax revisions would raise near $1.1 trillion total. To put that in perspective, the $820 billion difference between the two plans could pay for the entirety of the Plan’s “Green Energy Investments,” and fund a permanently expanded Child Tax Credit provision to cement the already progressive nature of these investments. Congress should act now to make these reforms to the Ways & Means Plan, protect American jobs, level the playing field for domestic businesses, increase the incentive to invest here, and raise necessary revenue to make a once-in-a-generation investment in equitable and sustainable growth.
The FACT Coalition is a non-partisan alliance of more than 100 state, national, and international organizations working toward a fair tax system that addresses the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial practices.
Notes to Editor:
- More information about the President’s proposals, including relating to revenue, can be found here. The Senate Finance Committee, under the leadership of Chairman Wyden and Senators Warner and Brown has previously released a separate international tax proposal here, and previous FACT Coalition comments to the Senate Finance proposal are available here.
- More information on why equalizing the tax rates on foreign and domestic profits increases the competitiveness of investment in the United States can be found here.
- For a detailed explanation on why FDII should be on the chopping block, see here.
- Joint Committee on Taxation scoring for Green Energy Investments and other investments can be found here.
- For a more detailed description of the potential OECD framework for a global minimum tax, see here.
- Fixing U.S. international tax law to tax foreign and domestic profits equally is the single most popular corporate tax reform to voters, garnering 70 percent support in a recent non-partisan poll. Similarly, 71 percent of small business support equalizing foreign and domestic rates and putting an end to profit shifting.
- An earlier version of this release referred to “$300 billion” that could be raised by Ways & Means GILTI revisions. Subsequent Joint Committee on Taxation scoring confirmed that this amount represented the total revenue that may be raised by the entirety of the Plan’s international taxation changes (with much smaller revenues coming from solely GILTI revisions, consistent with the analysis in this press release).