March 30, 2021 Connor Steens

WHO SUFFERS UNDER BIDEN’S TAX HIKES?

BY CONNOR STEENS

Under Biden’s recent political victory the post-Covid19, $1.9 trillion economic stimulus bill prompted complaints from many because it was paid almost entirely with additional federal debt. Biden now looks to some of the biggest corporations, along with wealthy individuals, to finance his ambitious spending proposals. With rumours of additional spending proposals worth approximately $3 trillion, it begs the question of where this money will come from.

Corporate tax rates look to rise from 21% to 28% and a 15% minimum tax on large corporations will be imposed. Meaning that regardless of any credits and deductions a company will still be liable to pay the minimum 15% on its earnings. Companies with significant amounts of overseas income could be increasingly vulnerable to any tax changes that might aim to target that income.

Tax Notes chief economist Martin Sullivan estimates that 33 of the 100 biggest U.S. companies may fall under the umbrella for Biden’s 15% minimum tax. If the minimum tax were enacted by itself those 33 companies could owe an additional $20 billion every year.

With no tax plan set in stone here’s who might be seeing a larger tax bill based on what’s known so far.

Fossil Fuel Companies

Biden looks to remove preferential tax subsidies placed on fossil fuel companies in a bid to help fight climate change. Although no carbon emissions tax has been proposed, both Biden and Treasury Secretary Janet Yellen support carbon pricing.

U.S. Companies That Manufacture Abroad

In order to promote local manufacturing in the U.S. Biden wishes to place tax penalties that aim to make overseas production more expensive. Penalties could include a 10% “offshoring surtax” on income from goods and services that are produced overseas and sold in the U.S. by American companies. Combined with the proposed 28% corporate tax rate, these companies will be subject to a 30.8% tax rate. Along with this, Biden looks to remove tax deductions for U.S. companies that move production offshore and has also hinted at doubling the taxes on profits for overseas subsidiaries of U.S. companies.

Big Banks

Big banks could also see new tax penalties in 2021, Biden has floated new fees on liabilities within financial firms with more than $50 billion in assets. With hopes of discouraging excessive borrowing and contributing to raising government revenue. In 2018, fees on those with more than $50 billion in assets was estimated by the Congressional Budget Office to raise approximately $103 billion over the decade.

Pharmaceutical Companies

Biden also looks to steer his attention towards pharmaceutical companies, in particular those making significant profit from prescription drugs. Included in this, Biden has proposed eliminating the tax deductions on prescription drug advertisement, imposing tax penalties on companies that raise the cost of drugs by more than the rate of inflation as well as eliminating tax incentives that encourage overseas manufacture.

Real Estate

Biden has previously described the tax breaks for real estate investors as “unproductive and unequal,” more specifically those with an income of over $400’000. There are speculations around whether this involves eliminating 1031 exchanges, where capital gains tax is avoided if the proceeds from a sold investment property are reinvested within certain time limits.

 

Thoughts around whether these tax hikes will ultimately hurt American businesses and consumers are ongoing, and valid. Although, Treasury Secretary Janet Yellen stated that the tax hikes are intended to prop up the productivity and competitiveness of the U.S. economy, further stating that “The Biden Administration is not going to propose policies that hurt small businesses or Americans.” Who suffers under Biden’s tax hikes is yet to be decided in 2021.

 

If you wish to enquire about asset protection in 2021 please contact us.

Connor Steens

Connor Steens works as an Analyst at Southpac Group. Connor has worked closely with Guy on investment an banking relationships. Connor currently oversees and monitors current marketing analytics, exposure and direction, content creation and market presence.
Get In Touch Today

Please fill the contact form below and one of our team will contact you shortly.



    X
    Contact Us