September 12, 2021
Potential Ways & Means tax increase proposals previewed
A preview document circulating in Washington September 12 of potential tax proposals that could be part of the House Ways & Means Committee Build Back Better Act reconciliation bill calls for increasing the top corporate tax rate to 26.5% and a GILTI rate of about 16.5%. The foreign tax credit GILTI haircut under current law would be reduced to 5% and GILTI would be calculated on a country-by-country basis, according to the document.
On other international tax issues, the proposals described would accelerate the increase in the BEAT rate to 12.5%, and the BEAT would be modified to narrow the scope of base erosion payments to low-taxed entities, similar to the President's SHIELD proposal and proposals being developed by the OECD. The proposal also would remove business tax credits from the BEAT calculation and change the BEAT so it doesn't unfairly penalize companies with losses.
The FDII rate reduction to 21.875%, currently set to take hold after 2025, would be accelerated, and the deemed tangible income return (similar to QBAI) would remain at 10%, according to the circulated document. An anti-earnings stripping proposal would limit the interest deduction of certain inbound companies in proportion to their share of the total earnings of their international financial reporting group.
The top capital gains rate would increase to 25%, the top individual income tax rate would return to 39.6%, and the net investment income tax would be expanded to cover net income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filer) or $500,000 (joint filer). A 3% surtax would apply to individuals with AGI over $5 million. The three-year carried interest holding period enacted under the TCJA would increase to five years, and the TCJA-doubled estate tax exemption would expire after 2021 rather than after 2025.
Some of the details were reported by press outlets, which cited confirmation by people familiar with the plan. The legislative text of the Committee's proposals is expected to be released prior to a markup beginning on September 14 at 9 a.m.