For the last three years Democratic lawmakers have framed the tax law, which passed with solely Republican votes, as a boon primarily for big companies and the rich. Biden’s campaign plan called for curtailing some of the tax cuts through new legislation—whether he can do that depends on the makeup of the House and Senate, which isn’t yet final.
High on the list of regulations that may get a second look are rules allowing companies to opt out of a new tax on global intangible low-taxed income (GILTI) if certain foreign affiliates are already paying at least 18.9% in offshore taxes. Prominent Democratic lawmakers, including Sens.
If there was a clear path for Biden’s legislative agenda, modifying those, or other regulations on the tax law, would potentially be unnecessary. The high-tax exception, for example, is irrelevant if Congress replaces the GILTI tax system with Biden’s proposed 21% country-by-country minimum tax on profits earned by foreign subsidiaries of U.S. firms, said David J. Kautter, Treasury’s assistant secretary for tax policy.
The likelihood and timing of major changes to tax law regulations depends on the new administration’s priorities and how much of Treasury’s time is consumed with other pressing work, such as implementing coronavirus relief measures.
“It will take almost ruthless prioritization to figure out what things get done early on because you don’t have the bandwidth to do everything,” said Mark Mazur, who was the assistant secretary for tax policy at Treasury under former President Barack Obama and now works as director of the Urban-Brookings Tax Policy Center.
Regulatory changes will likely be limited to scaling back, rather than entirely repealing rules, absent changes to the 2017 law, said Lisa Zarlenga, a partner at Steptoe & Johnson LLP who worked as tax legislative counsel at Treasury under the Obama administration.
“The regs are now kind of needed because they’ve implemented the statute, and you can’t just upset everything by pulling them,” she said.
‘Pretty Good Arguments’
To pare back recent regulations, a Biden administration could lean on lawmakers to use the Congressional Review Act, though the success of any CRA effort would depend on the balance of power in the Senate.
Proposed changes to older rules would have to undergo the normal notice-and-comment process, and Treasury would have to provide strong explanations supporting its position or face possible challenges from taxpayers under the Administrative Procedure Act.
It’s possible a subsequent administration could reach different conclusions on the tax law regulations, but it will be hard-pressed to do so while still maintaining an interpretation that is consistent with the law, Kautter said.
“We think we’ve got pretty good arguments for why things were done the way they were,” he said.
Other, non-tax law regulations that may be on the chopping block include rules exempting certain nonprofits from having to report the names and addresses of substantial donors on tax forms. Democrats, like Wyden, have criticized them, saying they’d allow “dark money” to pour into the U.S. election system.
Biden’s tax priorities, both on the regulatory and legislative front, are expected to align closely with Obama’s, for whom he served as vice president.
Biden’s campaign tax plan would increase the top corporate tax rate to 28% from 21%, matching a 2016 Obama proposal. Biden also says he would return the top individual income tax rate to 39.6% from 37%—as it was before the 2017 law.
Biden also wants to make changes to subject more individuals to higher estate and gift taxes in a plan similar to an Obama proposal. The stricter estate tax proposals may signal plans to reprioritize Obama-era regulations aimed at cracking down on people skirting their estate and gift taxes, said Tom West, a principal in KPMG LLP’s Washington National Tax practice. He worked at Treasury under Obama and President Donald Trump.
Despite the similarities between the Obama and Biden proposals, there are some areas where Biden’s team is taking a more progressive approach—like making the child tax credit fully refundable, Mazur said.
A Biden administration could also give fresh hope to global digital tax talks, though longstanding U.S. opposition to other countries taxing its tech giants is unlikely to change.
Nearly 140 countries are trying to reach agreement by next summer on an OECD-led effort to overhaul how the digital economy is taxed. If new rules to shift the profits of multinationals only target tech, as some countries have urged, the U.S. would lose tax revenue—something any administration would likely oppose.
“I can’t see them suddenly deciding it’s okay to give away U.S. corporate income tax base to other countries,” said Jeff VanderWolk, a partner at Squire Patton Boggs in Washington.
Another option under the OECD plan, designed to be more palatable to the U.S., would capture a broader swath of industries. But Treasury Secretary Steven Mnuchin wants those rules to be optional for companies—another barrier to agreement that might disappear under a new secretary.
It isn’t clear how a Biden administration would react to unilateral measures that have sparked trade threats from the Trump administration. The U.S. has levied tariffs on France, which is set to start collecting its digital services tax in December.
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