WIXLIB

intangible low-tax income (GILTI) provision and the foreign-derived intangible income (FDII) deduction.5 In addition, since foreignshareholders own a significant share of U.S. equities, much of the benefits of the corporate tax cut accrued to foreign, rather thanU.S., investors.6 Combined, the current tax code provides insufficient incentives for companies to maintain operations in the UnitedStates, while rewarding those that shift profits to low-tax jurisdictions.Toward a Fairer Tax SystemThe labor share of national income has been declining for years, representing a worrying trend for workers and a contribution torising income inequality.7 This shift has many causes, but it is exacerbated by a worldwide trend of governments shifting relativetax burdens away from corporations and capital and onto workers by reducing tax rates on capital gains, dividends, and corporateincome while increasing tax burdens on sales and wages. In the case of the United States, the share of federal revenue raised by thecorporate tax has fallen steadily and is now under 10 percent, while the share of revenue raised by taxing labor has been growing fordecades and now exceeds 80 percent.Figure 1: Labor and Corporate Share of Federal Tax Revenue (1950-2019)5GILTI exempts the first 10 percent return on foreign assets; all else equal, FDII deductions are less generous as domestic assets increase. Early literature has shownthat companies have responded to these perverse incentives. For example, Beyer et al. (see https://papers.ssrn.com/sol3/papers.cfm?abstract id 3818149)find that for U.S. multinational corporations, higher levels of pre-TCJA foreign cash are associated with increased post-TCJA foreign property, plant, andequipment investments. They do not find a similar increase in domestic property, plant, and equipment. Atwood et al. (see https://papers.ssrn.com/sol3/papers.cfm?abstract id 3600978) find the GILTI provisions introduced new incentives for U.S. multinational corporations to invest in foreign target firms with lowerreturns on tangible property so that they might shield income generated in havens from U.S. tax liability under the GILTI minimum tax.6See Rosenthal, Steven and Theo Burke. 2020. “Who’s Left to Tax? US Taxation of Corporations and Their Shareholders.” senthal%20and%20Burke.pdf). Also see Congressional Budget Office. Letter to the Honorable Chris Van Hollen. 18 April 2018.7See ILO and OECD. 2015. “The Labour Share in G20 Economies.” Report. International Labour Organization and Organisation for Economic Co-operation andDevelopment; Jacobson, Margaret M. and Filippo Occhino. 2012. “Labor’s Declining Share of Income and Rising Inequality.” Federal Reserve Bank of ClevelandWorking Paper 2012-13; Karabarbounis, Loukas and Brent Neiman. 2013. “The Global Decline of the Labor Share.” Quarterly Journal of Economics 129(1): 61–103;Karabarbounis, Loukas and Brent Neiman. 2014. “Capital Depreciation and Labor Shares Around the World: Measurement and Implications.” National Bureau ofEconomic Research Working Paper 20606; Elsby, Michael W. L., Bart Hobijn, and Ayşegül Şahin. 2014. “The Decline of the U.S. Labor Share.” Brookings Papers onEconomic Activity 2013(2): 1–63.The Made In America Tax Plan I 5

This trend has implications not only for the division between labor and capital income, but also for aggregate income inequality. Sincecapital income is disproportionately concentrated among wealthier taxpayers, tax preferences for capital relative to labor imply benefitsfor upper-income taxpayers relative to those with lower levels of income. The concentration in capital income is stark: in 2019, the top 5percent of the income distribution earned just 26 percent of labor income, but 71 percent of capital income.8Since corporate tax burdens, in the short-term, are largely borne by shareholders, near-term changes in corporate tax revenueare borne in equal proportions to foreign and domestic share ownership. In the wake of the TCJA, one key critique of the law wasthat since foreign shareholders own over one-third of U.S. equities, a large share of the tax cut was a windfall gain for overseasshareholders. In fact, one analysis observed that the TCJA conferred over three times the tax benefits to foreign taxpayers as it did tomiddle-income families.9Another aspect of fairness simply concerns the “effective” tax rate paid by corporations, or the tax bill as a share of profits after allexclusions and deductions have been claimed. One feature of the U.S. tax code is the substantial discrepancy between the headlinerate and the effective tax rate; this discrepancy can often obscure discussions of international competitiveness. In fact, U.S. multinationalcorporations’ effective tax rate—the share of profits that they actually pay in federal income taxes—is just 8 percent, the result of acombination of profit shifting and tax preferences that allow large companies to shrink their tax burdens.10Toward a Tax System that Raises Needed RevenueAs a result of the tax cuts of prior years, the United States now raises only about 16 percent of GDP in federal tax revenue, a decline ofabout four percentage points in the last two decades.The corporate tax has historically raised around 2 percent of GDP in revenue. This share depends on a host of factors, including thestate of the business cycle and the division of profits between the corporate and non-corporate sectors. Still, corporate tax revenuesremained roughly constant over the past four decades. After the corporate tax cuts under the TCJA, the share of corporate taxescollected as a share of GDP fell from 2 percent to 1 percent.Table 1: Corporate Tax Revenues Relative to GDP, United States and OECD AverageBefore and After Tax Cuts and Jobs Act of 2017 (TCJA)United StatesOECD Average11Post-TCJA: 2018-20191.03.15 Years pre-TCJA: 2013-20172.02.9Years Prior: 2000-20122.03.0Source: OECD Revenue Statistics8Data are available on the Treasury OTA website (see ution-of-Income-by-Source-2019.pdf).9See Rosenthal, Steven. 2017. “Slashing Corporate Taxes: Foreign Investors are Surprise Winners.” Tax Notes Federal, 23 October.10 See Joint Committee on Taxation. 2021. “U.S. International Tax Policy: Overview and Analysis.” JCX-16-21, 19 March.11 The average for G7 countries is very similar.The Made In America Tax Plan I 6

This contrasts with rising U.S. corporate profits, which are at historic and comparative highs. In recent years, corporate profits (aftertax) as a share of GDP averaged 9.7 percent (2005-2019), whereas in the period 1980-2000, corporate profits averaged only 5.4 percentof GDP.12 The U.S. corporate sector is the most successful in the world: it hosts 37 percent of the Forbes 2000 companies by profitwhile the United States accounts for 24 percent of world GDP.In part, the divergence between U.S. corporate profits and U.S. corporate taxes arises from the incentives created by the tax code forsuccessful multinationals to shift profits overseas to avoid U.S. tax burdens.Figure 2: Corporate Profits and Taxes as a Share of GDPOverhauling corporate and international taxation can raise substantial revenue. For the past two decades, the typical OECD countryhas raised about 3 percent of GDP from corporate taxation. (See Table 1 and Figure 3.) And while the United States has historicallyraised comparatively less revenue through the corporate tax relative to our trading partners, the wedge was greatly exacerbatedby the 2017 tax law. Indeed, closing even half the gap between the U.S. corporate tax burden and the median OECD burden isapproximately sufficient to pay for the proposed initiatives in the American Jobs Plan.12 Data are from the Federal Reserve Economics Statistics database.The Made In America Tax Plan I 7

Figure 3: 2019 Corporate Tax Collection in OECD Countries as a Share of GDPToward an End to Profit Shifting and OffshoringThe right approach for corporate taxation requires balancing dual priorities: maintaining U.S. competitiveness while protecting thecorporate tax base. As noted above, corporate tax collections in the United States, however, are at historic lows and well below whatother countries collect. Simultaneously, the United States has an “America last” approach to corporate taxation, incentivizing shiftingprofits to high-tax and low-tax jurisdictions alike. By blending income streams from high and low tax countries and taking advantageof the current exclusion in the U.S. minimum tax, U.S. multinational companies can be taxed at a 50 percent discount or more relativeto their domestic peers.Until 2017, foreign profits were taxed at the domestic tax rate upon repatriation to the domestic parent firm. This created bigincentives for large companies to keep profits offshore in order to avoid U.S. tax. For the last few years, U.S. firms have been subject toa minimum tax on their global intangible low-taxed income. This tax exempts the first 10 percent of returns on foreign tangible assets,and GILTI is taxed at approximately half of the corporate tax rate (10.5 percent).13Beyond its low statutory rate and exemptions, the current GILTI regime maintains profit shifting incentives. GILTI tax liabilities arecalculated on a global basis, which leads multinationals to prefer to earn income outside the United States; this preference extends toboth higher-tax jurisdictions as well as lower-tax ones. Since taxes paid in high-tax jurisdictions can generate tax credits that allow foruntaxed profit shifting into tax havens, companies can blend the two streams of income and achieve a tax burden that is only abouthalf that of domestic companies.1413 The tax rate can be as high as 13.125 percent depending on the location of companies’ foreign operations.14 Kamin, David, David Gamage, Ari Glogower, Rebecca Kysar, Darien Shanske, Reuven Avi- Yonah, Lily Batchelder, J. Clifton Fleming, Daniel Hemel, Mitchell Kane,David Miller, Daniel Shaviro, and Manoj Viswanathan. 2019. “The Games They Will Play: Tax Games, Roadblocks and Glitches Under the 2017 Tax Overhaul.” 103Minn. L. Rev. 1439.The Made In America Tax Plan I 8

As a result, of the top 10 locations for U.S. multinational profit in 2018, seven were tax havens.15 More U.S. profits are housed in tiny taxhavens than in the major economies of China, India, Japan, France, Canada, and Germany combined. Bermuda, a country of merely64,000 people, shows 10 percent of all reported U.S. multinational foreign profit, an amount of reported profit that is many multiples ofBermuda’s GDP.16 Despite attempts to rein in profit shifting, tax havens are as available today as they were prior to the 2017 tax reform.For U.S. multinational companies, the share of total foreign income in seven prominent havens is nearly identical in the two years afterTCJA (2018 and 2019) as it was in the five years prior to the law, at 61 percent of after-tax income, or 1.5 percent of GDP.Figure 4: Share of U.S. Multinational Corporation Income in Seven Big Havens, 2000-2019Note: Data are foreign investment earnings from the U.S. Bureau of Economic Analysis (https://www.bea.gov/international/di1usdbal). The seven low-taxjurisdictions that are particularly important in these data are: Bermuda, the Caymans, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland. Thehaven share is mechanically higher than it would be in some data sources since the data are reported on an after-tax basis.Toward a Cleaner Energy SectorTax preferences for oil, gas, and coal producers today decrease their tax liabilities relative to other firms. Not only does this lead to loweroverall tax receipts, but these provisions of the tax code shift our energy production away from cleaner alternatives, undermining longterm energy independence and the fight against climate change. Subsidized fossil fuels have also negatively impacted air and waterquality in U.S. communities—especially in communities of color. Fossil fuel companies additionally benefit from substantial implicitsubsidies, since they sell products that create externalities but they do not have to pay for the damages caused by these externalities.Recent research shows how the benefits of these implicit subsides are concentrated within a handful of large firms.1715 In addition, two other countries in the top 10 have effective tax rates within one percentage point of the 10.5 percent GILTI threshold. Of the top ten countries, onlyCanada has a rate above 11.4 percent. See Table 6 of Joint Committee on Taxation. 2021. “U.S. International Tax Policy: Overview and Analysis.” JCX-16-21, 19 March.16 See Table 6 of Joint Committee on Taxation. 2021. “U.S. International Tax Policy: Overview and Analysis.” JCX-16-21, 19 March.17 See Kotchen, Matthew. 2021. “The Producer Benefits of Implicit Fossil Fuel Subsidies in the United States.” Proceedings of the National Academy of Sciences 118(14).The Made In America Tax Plan I 9

At the same time, incentives for clean energy production and investments are insufficient to match the massive scope of ourenvironmental and climate problems. For example, the production tax credit for renewable electricity producers lapsed and wasretroactively extended five times between 1999 and 2015, leading to significant policy uncertainty for renewable producers. TheBiden-Harris Administration’s climate-related commitments would remove the subsidies for fossil fuel producers and substantiallyexpand tax incentives for clean energy.A Tax Code To Bolster American CompetitivenessIn recent years, our international partners have overhauled their corporate tax codes and broadened their tax bases, raising revenues(relative to the size of their economies) well above those we collect. Efforts to rein in profit shifting in the United States, however, havemade corporate taxation worse. The U.S. raises less corporate tax revenue (as a share of GDP) than at any time since at least WorldWar II, and incentives for shifting profits and offshoring jobs outside of the United States remain. The 2017 tax law largely retainedprofit shifting incentives and increased those for offshoring.The failure of our corporate tax regime to meet the challenges of the modern era has had real consequences. Current tax laws levyhigher tax rates on labor income while entrenching preferences for capital income which disproportionately accrues to higher incometaxpayers. The President’s Plan would undo the ability of taxpayers to shield capital and corporate profits from tax liability. Thiswould curtail profit shifting, bolster U.S. tax competitiveness, and raise much-needed tax revenue.Raising the Corporate Income Tax Rate to 28 percentThe Made in America tax plan will increase the corporate tax rate from 21 percent to 28 percent. This increase maintains a tax rate oncorporate profits which is approximately 7 percentage points below the rate that was in place from the late 1980s until 2017, and it ispaired with attendant reforms designed to promote competitiveness and reward productive investments.As noted above, the United States raises less corporate tax revenue (as a share of GDP) than almost all of the advanced economiesin the OECD.18 Raising the corporate income tax rate would modestly increase corporate revenues relative to GDP, still leaving thembelow those of our trading partners.In addition to raising revenue to fund urgent fiscal priorities, raising the corporate income tax rate would also help attenuateinequality. The corporate income tax is one of the most progressive taxes in our tax system. Also, the corporate tax is an essentiallever for taxing capital in general, serving as a critical backstop to ensure that capital is taxed at least once; in the absence of thecorporate tax, a substantial share of capital income would escape taxation altogether.19The Made in America tax plan recognizes that corporate investment depends on far more than the headline tax rate.Investment alsodepends on the factors that truly shape business climate, including the health and education of our workforce, the strength of ourinstitutions, and smooth and stable relations with other countries. The President’s plan to make public investments in infrastructure,technology, research, and the green industries of the future would help lay a strong foundation for longstanding economic prosperity.It would also promote job creation in the United States, ensuring that American workers benefit from a robust domestic economy.18 See OECD data at .htm#indicator-chart.19 See Burman, Leonard E., Kimberly A. Clausing, and Lydia Austin. 2017. “Is U.S. Corporate Income Double-Taxed?” National Tax Journal 70(3): 675–706.The Made In America Tax Plan I 10

Ending Offshoring and Profit Shifting Incentives: Strengthening the Global MinimumTax for U.S. Multinational CorporationsOne of the most important objectives of the Made in America tax plan is to reduce incentives for the offshoring of American jobs whilealso limiting the ability of corporations to take advantage of corporate tax loopholes to shift their profits to low-tax jurisdictions.The plan takes aim at offshoring through a series of reforms that reverse tax-based incentives for moving production overseas.Perhaps the most consequential of these are fundamental changes to the GILTI regime introduced by the TCJA. The Made in Americatax plan would eliminate the incentive to offshore tangible assets by ending the tax exemption for the first 10 percent return onforeign assets. It would also calculate the GILTI minimum tax on a per-country basis, ending the ability of multinationals to shieldincome in tax havens from U.S. taxes with taxes paid to higher tax countries.20 The plan would also increase the GILTI minimum taxto 21 percent (up to three-quarters of the proposed new 28 percent corporate tax rate, as opposed to the current one-half ratio).In addition to th

4. Enacting a 15 percent minimum tax on book income of large companies that report high profits, but have little taxable income; 5. Replacing flawed incentives that reward excess profits from intangible assets with more