Last week, President Biden introduced his second big proposal. The first, the American Rescue Plan Act (ARPA) was recently signed into law. The ARPA focused on economic recovery and resources to end the public health pandemic. This second proposal – The American Jobs Plan – is primarily focused on building out and replacing aging infrastructure. The plan does contain many of the priorities listed by the U.S. Chamber in its Build by the 4th Announcement. That announcement asks Congress to pass a comprehensive infrastructure deal by July 4, 2021. During the U.S. Chamber of Commerce press conference regarding the Brent Spence Bridge, the Ohio Chamber also called on the federal government to help modernize the transportation system, to clear gridlock and ensure a free flow of commerce.
Currently there is only a high-level proposal with limited details. Those details should arrive over the next month as legislation is drafted and debated by Congress. We know that the plan includes upgrades for highways, bridges, ports, airports and transit systems. Along with investments for drinking water systems, electrical grid upgrades and high-speed broadband services.
The proposal will look to pay for the infrastructure investment with changes to the federal tax code. The proposal contains only hints on the changes to the federal tax code sought to both pay for the plan and to address the pending phase-out of current tax code sections. Those tax changes are the focus of this post.
To avoid a detailed discussion on GILTI (global intangible low-taxed income), BEAT (base erosion abuse tax), Section 199A, and FDII (foreign-derived intangible income), I will simply point out that the proposal discusses a “Made in America Tax Plan” and provides enough details to place the tax proposals in broad categories.
The American Jobs Plan will likely include tax changes for the energy sector, both changes to tax code provisions used by the fossil fuel industries and expansion of credits and incentives for energy companies investing in high voltage transmission lines, solar and wind projects and other technologies. Once more details are released, I will provide an update on these changes. Changes will likely occur in the current ITC (investment tax credit), the PTC (production tax credit) and the section 45Q tax credit program.
There will be changes to the rules around international tax and corporate tax rates along with changes for noncorporate businesses. The current corporate tax rate is set at 21%, and this proposal will likely seek an increase to that rate. The changes for noncorporate business will include changes to Section 199A and probably an increase in individual tax rates in the upper income tax brackets. There will also be changes to administration of tax controversies. That is a fancy way of saying there will be increases in audits, enforcements and appeals.
This post is simply an introduction to the pending changes in the federal tax code under this new American Jobs Plan proposal. As more details emerge and legislation drafted, future posts will drill down to those details and provide a more detailed explanation.
One word of caution, proposals to change the federal tax code create great headlines, but the process is usually unpredictable and can take months and many rewritten drafts before we see final language that can pass both the House and Senate. I will bring updates as that process unfolds. And unless, asked, I will avoid discussing changes to GILTI, FDII and BEAT.