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US Occupies Center Stage

Kitty Miv, Editor
28 January, 2021

Whilst not a huge amount has been said by the new White House administration with regard to new tax plans as yet (which is not to say that President Biden hasn't been busy during his first few days in office...!), the 46th President has outlined his tax priorities in the past, most recently during the Presidential campaign and then on the election trail.

Prior to his election, for example, Biden proposed increasing the federal headline rate of corporate tax from 21 to 28 percent, reforming the GILTI rules, and introducing a 15 percent minimum tax, or "book tax," on companies with reported income in excess of USD100m. He also discussed imposing sanctions on jurisdictions deemed to facilitate corporate tax avoidance and voiced support in July 2020 for tax relief for manufacturing companies.

In September 2020, he promised "strong anti-inversion regulations and penalties" and said that his Administration would deny deductions and expensing write-offs for companies moving jobs or production overseas where the jobs could "plausibly" have been offered to American workers. Biden has also outlined a proposal for a 10 percent "Made in America" Tax Credit for firms that create jobs for US workers. The credit, he suggested, would be applied to a company's incremental increase in overall manufacturing wages in the United States - above that company's historic, pre-COVID baseline – for manufacturing jobs paying up to USD100,000.

Biden has also discussed a "10 percent offshoring penalty surtax", which would result in the imposition of a 30.8 percent corporate tax rate on profits derived by American companies that operate call centers or offer services targeting American consumers from overseas, where the jobs could have been located in the United States.

The new President has also said previously he would restore the top rate of personal income tax to 39.6 percent from 37 percent; restrict tax breaks for wealthy taxpayers; and tax capital gains as ordinary income and prevent wealthy taxpayers from deferring tax through investments. He also proposed that estate taxes, also reduced by the TCJA, should be raised back to "the historical norm." Finally, he has said that payroll taxes should be expanded for those on high incomes to fund more generous social security benefits.

Whilst tackling the Coronavirus crisis is likely to occupy the majority of the Biden administration's time in the short-term, based on the proposals discussed above, once a little headroom has been created in the coming months, it's likely to be a case of watch this space to see which of them makes it through, and to what degree.

Sticking with the United States, then, the IRS has been busy on the COVID front, extending reliefs available for qualified opportunity funds (QOFs), in response to the pandemic.

Opportunity zones, created by the 2017 Tax Cuts and Jobs Act, are designed to spur investment in distressed communities through tax benefits. Opportunity zones retain their designation for 10 years and investors may defer tax on almost any capital gain up to December 31, 2026, by making an appropriate investment in a zone, making an election after December 21, 2017, and meeting other requirements.

The regulations allow the deferral of all or part of a gain that is invested into a QOF that would otherwise be includible in income. The gain is deferred until the investment is sold or exchanged, or until December 31, 2026, whichever is earlier. If the investment is held for at least 10 years, investors may be able to permanently exclude gain from the sale or exchange of an investment in a QOF.

Taxpayers who sell property for an eligible gain and who would have had 180 days to invest in a QOF to defer that gain have been granted extra time owing to the COVID-19 pandemic.

The tax authority also issued guidance on how employers who elected to defer certain employees' taxes can withhold and pay the deferred taxes throughout 2021 instead of in just the first four months of the year.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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