Biden’s Tax Plan May Impact Inc Taxes, Corporate Rate Review

Understanding the Impact of Tax Policy on Business Growth

The Tax Cuts and Jobs Act (TCJA) has been a cornerstone of fiscal policy since its inception in 2017, with individual provisions set to cost an estimated $3.5 trillion over the next decade. While there is bipartisan support for maintaining these provisions for individuals earning under $400,000, the cost remains a significant concern, projected between $2 trillion to $2.25 trillion. The business extenders, on the other hand, are comparatively less expensive at approximately $1 trillion.

However, the looming fiscal cliff and growing debt concerns have put the spotlight back on revenue sources, with the corporate tax rate potentially in the crosshairs. The TCJA’s reduction of the corporate tax rate to 21% is under scrutiny as Congress grapples with deficits and political pressures. Even if the rate remains unchanged, other business tax rules could be modified, potentially increasing the income tax companies pay.

Multinational corporations are also facing changes with the implementation of the OECD’s global minimum tax regime, known as Pillar Two. This new framework, which became effective on January 1, 2024, could see companies paying higher inc taxes, despite ongoing discussions about key rule aspects.

With the shifting landscape in Congress and only a fraction of the original TCJA architects remaining, businesses are encouraged to engage with lawmakers. Surprisingly, according to PwC’s August 2023 Pulse Survey, only 27% of tax leaders are actively doing so. Crafting a narrative that resonates with policymakers and aligns with their priorities is crucial. This involves internal collaboration among financial planning teams, communication experts, and business operation leaders to effectively convey the potential impact of tax policy decisions.

For companies, the current 21% federal corporate tax, along with incentives like the FDII for domestic manufacturing and intellectual property investments, are high priorities. Yet, it is essential to communicate broader implications such as employment, investments, and growth when discussing policy with decision-makers.

The combined U.S. corporate tax rate currently stands at 25.8%, which is still higher than the OECD average. Any increase could further challenge U.S. companies’ competitiveness in the global market. As such, businesses must remain vigilant and proactive in understanding and influencing tax policy developments, including those related to corporate tax returns and Cyprus tax on interest income.

With everything on the table, including potential changes to the corporate rate that could affect job creation and investment in the U.S., it’s a critical time for businesses to make their voices heard in the tax policy debate.