With the East Coast earthquakes, a total solar eclipse, and trillions of cicadas about to join us aboveground, it’s easy to forget that Congress is stuck on a tax bill that would renew corporate tax breaks from former President Trump’s Tax Cuts and Jobs Act (TCJA).
Catherine Schultz, VP of tax and fiscal policy at the Business Roundtable, an association of CEOs, has not forgotten. She recently spoke to CFO Brew about why the organization is pushing for the bill, President Biden’s proposals to raise corporate taxes, and whether the US will adopt the OECD’s global tax agreement.
This interview has been edited for length and clarity.
You said that passing the Tax Relief for American Families and Workers Act (TRAFWA) is your top priority because it renews three parts of the 2017 Tax Cuts and Jobs Act. What are they?
Beginning January 1, 2022, R&D moved from full expensing to five-year amortization. We want to go back to full expensing as is written in the tax extender package.
Interest deductibility [under the TCJA had] an EBITDA formula that beginning January 1, 2022, went to EBIT, and depreciation and amortization fell away. The tax extender package takes that back to the EBITDA standard.
Full expensing [of investments in new equipment and technology] started to phase out at the end of 2023 at 20% a year. It completely phases out at the beginning of 2026. [Under TRAFWA, it] goes back to 100%.
The Biden administration pushed for the OECD global minimum tax agreement in 2021, but Congress hasn’t enacted its overarching requirements, including the global minimum tax, aka Pillar Two. Do you think Congress eventually will?
There are a lot of things that have to be taken into consideration as to whether or not the US will determine whether it’s going to want to be Pillar Two-compliant. It’s hard to know how the US system will fit into the global system and whether any changes will be forthcoming from either Democrats or Republicans.
There are several different pieces of Pillar Two, of the global minimum tax. It’s not just [that] we have a 15% global minimum tax. [With the] undertaxed profit rule (UTPR), if a company has an effective tax rate of less than 15%, another country can then top up that amount under 15% by adding a tax or eliminating a deduction or changing a tax provision for one of the subsidiaries of the company in their jurisdiction. If you have your 21% [tax rate] but you have an R&D tax credit, you have a couple other tax credits, and you’re below 15%, you’re using something that our government’s encouraging you to do, but then another country can come in and then take a piece of that additional tax from that company.
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CFO Brew recently spoke to a deputy Treasury secretary about the Biden administration’s proposals to raise some corporate taxes. What do you think of them?
Most of these things that were in the president’s budget were in his budget last year. So they’re not new issues. But these are basically job-killing tax increases on American employers. Particularly, raising the corporate rate that high just makes it so that it’s much harder for US companies to do business within the US. Since the TCJA, corporate revenues have gone up, and the US is making more money. Why would you slow that down? The economy is doing great, companies are doing great, we’re growing, the economy is growing—every time you look at the jobs report, it’s going up. Why would you want to put a brake on that? And that’s what the tax increases that were in the president’s budget would do.
Do you have any thoughts on tax proposals from the Trump campaign?
I have not, quite honestly, paid as close attention. He’s not been talking all that much about taxes in general. But when he has mentioned it, he has mentioned that he would like to see his TCJA provisions made permanent. I mean, that was one of his signature pieces of legislation when he was president. I think that he would be pushing very hard to make sure that all of those provisions are extended and made permanent.
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