Dive Brief:

• The Biden administration’s “Made in America” tax plan would increase taxes on U.S. multinational corporations in 2022 by 81%, to $104 billion, and by 72% over the next decade, to $1.2 trillion, according to a Tax Foundation study.

• Tax rates on domestic income would rise more than on foreign income, resulting in a net increase in profit shifting by U.S. companies outside the country and a reduction in their U.S. tax liabilities by $75.5 billion over 10 years, the Tax Foundation said.

• The Biden plan would impose a 9.4% average surtax on foreign activities by U.S. multinational companies above the taxes that they pay abroad, putting them at a competitive disadvantage and “perhaps forcing U.S. firms to sell their foreign subsidiaries,” according to the analysis.

Dive Insight:

The Tax Foundation study collides with points the Biden administration has made while trying to gain public and congressional support for its tax proposal. Biden would raise the corporate tax rate to 28% from 21% and the minimum tax on the foreign profits of U.S. companies to 21% from 10.5%.

The Treasury Department, citing data from the Joint Committee on Taxation, notes that in 2018 the effective tax rate on profits of U.S. multinationals was just 7.8% compared with an average of 8.7% and 18.1% among the European Union and the top 10 U.S. trading partners, respectively.

The U.S. collects less in corporate taxes as a share of gross domestic product (GDP) than most other advanced economies in the Organization for Economic Co-Operation and Development, according to the Treasury. Since the approval of a tax cut package in December 2017, corporate tax revenues have fallen to 1% of GDP from 2%.

Also, U.S. and foreign corporations have incentives to report profits in low-tax countries rather than in the U.S., and “the latest data suggest that such profit shifting remains at record levels,” the Treasury said.

Finally, a U.S. company that invests in a physical asset abroad pays no U.S. tax on the first 10% return on foreign investment.

Biden’s tax proposal aims “to make American companies and workers more competitive by eliminating incentives to offshore investment, substantially reducing profit shifting, countering tax competition on corporate rates and providing tax preferences for clean energy production,” the Treasury said.

The plan over a 15-year period would fully pay for Biden’s $2 trillion in proposed infrastructure spending, known as the American Jobs Plan, according to the White House.

Treasury Secretary Janet Yellen this month called for a global minimum corporate tax rate, pledging to work with other countries “to end the pressures of tax competition and corporate tax base erosion.”

Yellen said in an April 5 speech that Treasury seeks in talks with G-20 nations to achieve a minimum corporate tax rate that ensures “the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity.”

As it stands, Biden’s tax plan would erode U.S. competitiveness, the Tax Foundation said.

“The high U.S. taxes on foreign activities of U.S. multinationals under the proposal would put U.S. MNEs [multinational enterprises] at a disadvantage relative to non-U.S. corporations,” the Tax Foundation said. “This disadvantage would be sizable, potentially resulting in substantial restructuring of foreign ownership and activities of U.S. multinationals.”