What is the American Jobs Infrastructure Proposal & What Taxes Would It Raise?

April 1, 2021 | Article

By Jay Heflin

The White House recently released a fact sheet on President Joe Biden’s American Jobs Plan that includes several proposals affecting infrastructure, housing and elder care. It also includes the suggested method for paying the cost of implementing the plan.

The Made In America Tax Plan, which is the tax portion of the American Jobs plan, proposes an increase on corporate taxes, changes to international taxation features, elimination of what are termed special preferences in the fossil fuel industry, and a minimum tax (computed on book income) of the largest corporations. The plan does not include tax increases for individuals, although the closing sentence of the fact sheet contains the following: “and makes sure the highest income individuals pay their fair share,” which would indicate something more is coming.

Have a question about what the American Jobs Plan will mean for you?

Has the American Jobs Plan Passed?
It is important to note that this is President Biden’s proposed plan, and it still needs to make its way through Congress. Plus, the plan’s tax proposals are general outlines only and do not include details such as: how they would work, whether they would apply to smaller taxpayers, or the effective date.

Congressional Republicans in both chambers are not expected to support the plan. Therefore, Democrats may need to rely on the budget reconciliation process to pass the plan through Congress. Last month, the budget reconciliation process was used to pass the $1.9 trillion American Rescue Plan.

The budget reconciliation process only requires a simple majority for legislation to pass the Senate. Currently, the Senate is split evenly: 50 Democrat votes and 50 Republican votes. Passing the plan, which would also include the Made in America Tax Plan, will require all 50 Senate Democrat votes to support the plan with Vice President Kamala Harris then casting the final vote to attain the reconciliation process 51 vote simple majority requirement.

Will the House of Representatives Pass the Plan?
First, the House of Representatives must approve the plan.

House Speaker Nancy Pelosi (D-Calif.) wants to pass the plan through the House (or a modified version of it) by the Fourth of July. The Senate is expected to act on the plan once it passes the House, which means it could pass the Senate as early as late July.

Between now and July 4, the House is scheduled to be in session for seven weeks. This likely means the relevant House Committees will need to hold hearings/markups on the plan when the House is in recess, which doesn’t normally happen.

Based on current information available, the relevant House Committees are expected to modify the plan. For instance, the plan, in current form, does not repeal the $10,000 limit on the State and Local Tax deduction, which could become a point of concern. House Democrats Bill Pascrell, Josh Gottheimer and Mike Sherrill, all from New Jersey, along with Tom Suozzi (NY) have said they won’t support the plan unless it repeals the SALT cap.

Assuming no House Republicans vote for the plan, which is expected, House Democrats can only lose four votes and still pass the legislation.

Some moderate House Democrats are also said to be concerned about increasing taxes as the economy struggles to recover from the pandemic. This concern may not stop passage of the plan, but it could result in either phased-in or delayed effective dates for a number of the proposals.

How will the American Jobs Plan be Paid For?
The White House projects the plan will cost $2.5 trillion over eight years. The administration says those costs will be paid over the next 15 years by increasing corporate taxes and various other tax changes in the plan.

The plan, as proposed:

  • Increases the corporate income tax rate from 21% to 28%.
  • Imposes a 21% global minimum tax on U.S. corporations, which would be calculated on a country-by-country basis. (The Biden plan also gives a tip of the hat to the OECD-led effort to adopt a global minimum tax).
  • Eliminates the rule allowing U.S. companies to pay zero taxes on the first 10% of profit when they locate investments in foreign countries. 
  • Repeals the Foreign Derived Intangible Income (FDII) deduction.
  • Creates a 15% minimum tax on book income for the largest corporations (not defined).
  • Denies company expense deductions for moving jobs offshore.
  • Imposes more restrictions on corporate inversions.
  • Eliminates special tax preferences for fossil fuels.

The fact sheet also states these proposals “will be paired with a broader enforcement initiative to be announced in the coming weeks that will address tax evasion among corporations and high-income Americans” and possible additional tax code modifications. And the President “will be putting forward additional ideas in the coming weeks for reforming our tax code so that it rewards work and not wealth and makes sure the highest income individuals pay their fair share.”

Are Tax Credits Part of the American Jobs Plan?
Proposed Tax Credits in the plan include:

  • A tax credit for transferring foreign jobs to the U.S.
  • A tax credit for low- and middle-income families and small businesses for them “to invest in disaster resilience.”
  • A tax credit for building electric transmission systems.
  • Modifying the Section 45Q tax credit (credit for carbon oxide sequestration).
  • Tax credits for affordable housing, making homes more energy efficient and providing childcare facilities.
  • Extending the 48C tax credit program to support “modernizing supply chains, including in the auto sector.”

What Comes Next for the Plan?
The American Jobs Plan is not the only proposal that President Biden is expected to release. In April, it’s anticipated he will unveil a second proposal called the American Families Plan that will address the child tax credit and paid leave. Tax increases are also anticipated in the American Families Plan, and that might be where the repeal of the $10,000 SALT cap is handled, thereby clearing the way to passage of the Plan. There definitely will be more to come.

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