Firms ought to put together for Biden’s tax reforms

After much speculation about whether the Biden administration would prioritize the tax changes proposed in the 2020 campaign, President Biden released further details of his tax reform plan, dubbed the “Made in America Tax Plan,” less than 100 days after taking office.

The tax plan goes hand in hand with the American Jobs Plan, a massive infrastructure project that aims to “redefine and rebuild a new economy,” largely driven by higher tax revenues.

To generate the revenue needed to fully fund the American employment plan, the Made in America tax plan proposes to reverse the corporate tax cut that was at the heart of the Trump administration’s 2017 tax cut and employment law. President Biden’s tax plan also proposes a number of other changes, mainly related to international taxation, with the stated aim of incentivizing job creation and investment in the US

While major tax changes could occur in the future, it is difficult to predict the final changes or their earthquakes. The fact sheet published by the White House contains few details in many respects, and a full explanation of each proposal will not be available until the Treasury Department publishes its “Green Paper” in the spring. In addition, any proposal is likely to be pushed back significantly by Republicans in Congress, and passing a proposal requires minimally the unanimous support of Senate Democrats and the support of the vast majority of House Democrats. Accordingly, the President’s more ambitious proposals could very well face the deadlock in Congress and require significant overhaul in order to garner the support needed for enactment. To add to this mystery, several cabinet members, including Treasury Secretary Janet Yellen, have repeatedly suggested that the proposed changes will be introduced iteratively in separate pieces of legislation. In connection with the lengthy reconciliation process in Congress, it is therefore difficult to predict when a proposal will come into force or even take effect.

The difficulty of predicting the final impact of the tax plan and the likelihood of a lengthy legislative process make preliminary tax planning extremely difficult, as tax professionals cannot reliably predict exactly what is coming and when. The Biden government has not provided specific details as of the date, but legislation could be introduced in no time within the next six weeks and incorporated into law within the next six months, with some changes potentially coming into effect for tax year 2022. However, the schedule could be considerably longer.

However, there are financial, operational, and other remedial actions companies can take in 2021 to mitigate the potential impact of Biden’s tax plan. First and foremost, companies should work with their tax advisors to model the potential impact of each proposal and, where possible, incorporate milder variations of each proposal (e.g. if the corporate tax rate has been increased to 25 percent instead of 28 percent). Based on the results of these modeling efforts, organizations should develop a strategic plan that takes into account the most likely changes and identifies both interim and post-event measures to mitigate the impact of potential changes.

Taxpayers and their advisors should also speak to lawmakers about how any proposal would affect their bottom line, profitability, hiring practices, or any other aspect of their business that could be adversely affected by these proposals.

Businesses should consider stopping international expansion if the tax plan’s proposals undermine or negate the benefits. However, in some cases it may be beneficial to expedite international expansion or the offshoring of certain operations. Modeling results can provide information as to whether such measures are advantageous or to the detriment of a company.

Despite the uncertainty, some tax planning measures in 2021 may well be advisable. For example, the likelihood of the corporate tax rate rising might make it advisable to expedite income recognition under a preferred tax rate in 2021. Other timing measures may also prove beneficial, e.g. B. the postponement of losses and deductions to a later tax year, the acceleration of the deduction of prepaid expenses, the activation of R&D expenses or the deselection of bonus depreciation. Businesses should work with their tax advisors to determine the actions that should be taken in the meantime before any changes to tax law are implemented.

The stated goal of Biden’s Made in America tax plan is “to raise over $ 2 trillion in the next 15 years and more than pay for the mostly one-time investments in the American employment plan and then permanently reduce the deficits”. It remains to be seen whether these changes will ultimately be implemented or have the desired effect. In the meantime, US-based companies, especially those with international operations, will need to prepare for material changes to their tax reporting and obligations, although they will have difficulty predicting exactly what those changes will be.