President Biden’s Infrastructure Plan Moves Toward Ending “Zero-Tax” Profitable Corporations

Following is a statement by Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, regarding the corporate tax provisions in the “American Jobs Plan,” released by the White House on March 31.

“For years, our corporate tax has been broken, allowing profitable corporations to altogether avoid taxes or pay far below the statutory rate. The corporate tax provisions outlined in the American Jobs Plan could lead toward a fairer, more sustainable corporate tax system.

“The president proposes to raise needed revenues by undoing some of the Trump administration’s corporate rate cuts. His proposal would also broaden the corporate tax base by stopping offshore profit-shifting, repealing fossil fuel subsidies, ending the phenomenon of zero-tax corporations by creating a backstop “minimum tax,” and giving the IRS the funding it needs to enforce the laws. By increasing the federal corporate tax rate to 28 percent, the Biden plan would take back some of the gigantic tax cuts pushed through by the Trump administration in 2017 when lawmakers slashed the statutory rate from 35 to 21 percent. Because the corporate tax applies only to profitable companies, this change would ensure that the cost of funding public services is borne by the companies that can afford to do so.

“Tax rates mean nothing if companies can pretend that their taxable income is zero as companies from Amazon to Netflix to Zoom have done in recent years. The Biden plan would sharply reduce the frequency of “zero-tax corporations” by creating a new backstop tax. Biden’s 15 percent “minimum tax” on book income would make sure that when companies report big earnings to their shareholders, they pay federal income taxes that reflect those earnings.

“Big multinational corporations have, for decades, shifted intangible assets into offshore tax havens and even claimed to become foreign entities for tax purposes. The 2017 tax cuts created incentives for companies to move tangible assets—and the jobs that go with them—abroad as well. Biden’s corporate tax outline would remove these incentives by creating a strong minimum tax on offshore profits, repealing the FDII tax deduction and blocking corporate tax inversions.

“Our tax laws are meaningless if they can’t be enforced. The President’s plan gives the Internal Revenue Service the funding it needs to enforce the laws while targeting more of its enforcement efforts toward the biggest and most profitable corporations. This needed funding boost will discourage these corporations’ leaders from engaging in legally dubious tax avoidance schemes while building the American public’s trust in our tax system and in our institutions more generally.

“We need a tax system that raises adequate revenue for our many needs, raised from those most able to pay including corporations. This approach will reduce economic and racial inequity, reinforce the American public’s trust in our institutions and provide resources to invest in our communities. The broad outlines of a corporate tax reform plan the Biden Administration has released today would support these important objectives, making it harder for big multinational corporations to avoid paying taxes while making it easier for tax administrators to fairly enforce the law.”

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