Kathryn Kaminsky, PwC’s Vice Chair and head of Tax, and Dave Camp, a Managing Director within PwC’s Washington National Tax Services and former Congressman and Chair of the House Ways and Means Committee, discuss the legislative policy agenda:
Kathryn: Chairman Camp, before we dive into policy, you had an office in the Capitol building as Chair of the Ways and Means Committee. Could you tell us what it was like for you to watch the events that unfolded there on January 6?
Chairman Camp: You’re right, I had an office in the Capitol on the House side. The attack struck a deeply emotional, personal chord for me. The Capitol is a symbol of freedom and hope. The representation of American democracy. It was deeply tragic to watch the mob wreak havoc there. As we emerge from this week, I hope we can all start listening more and finding common ground, for the good of our country.
Kathryn: Thank you, Chairman Camp. Turning to policy, could you share the immediate impact of the Georgia Senate Results?
Chairman Camp: With Jon Ossoff (D) and Raphael Warnock (D) winning their respective races, the Senate is now evenly divided, with Vice President Kamala Harris holding the tie-breaking vote. The Democrats control the House of Representatives by the slimmest of margins 222-211 (2 outstanding seats).
President-elect Biden proposed corporate income tax rate from 21% to 28%. He also proposed doubling the tax rate on global low-taxed intangible income (GILTI) and a new 15% alternative minimum tax on global book income. Additionally, he has proposed incentives for onshoring certain activities and a corresponding offshore ‘penalty’ tax for companies that choose to move operations like supply chains offshore.
Given the Senate makeup of 50 Democrats and 50 Republicans, every Democratic vote is critical to any tax changes. West Virginia Senator Joe Manchin has made public statements that he will not support a 28% rate, so a proposal for a corporate rate increase would likely be no higher than 25%. In addition, bipartisan support is more likely to arise for the ‘carrot’ type of proposals, like encouraging domestic production.
In short, together with our PwC Tax policy team, I believe we could see:
A corporate rate increase;
Increased taxation of foreign operations; and
Returning the top individual rate to 39.6%.
Kathryn: PwC’s Road to Election Pulse Surveys reveal the international tax landscape remains a high priority for multinational corporations, higher even than COVID relief. President-elect Biden has not released official positions regarding the OECD/G20 effort to reach a consensus on tax rules for digitalization of the global economy. What implications will the new administration and Congress have on the international tax front?
Chairman Camp: That’s right, international tax policy remains critically important to business leaders. And there is the potential for a global change in nexus and profit allocation rules. The OECD Inclusive Framework project on the digitalizing economy (BEPS 2.0) is likely to change the international tax rules in a fundamental way which could influence how companies conduct business around the world, but the outcome of the project remains unclear.
The Inclusive Framework is under pressure to reach a consensus agreement by mid-2021 before the European Union and other countries engage in more unilateral actions. President-elect Biden has not yet taken an official position on this debate, but other countries have to keep in mind that there is bipartisan support for making sure US tech companies are not targeted.
Kathryn: Looking ahead, what policy priorities do you see initially making their way through Congress?
Chairman Camp: There are two important points to keep in mind: The first is that tax legislation is likely to include rate increases, but may not be a first 100-day priority given President-elect Biden’s agenda, which prioritizes COVID-19 pandemic and economic relief. The second consideration is that the split in the Senate requires the Vice President to cast the tie-breaking vote, so major tax legislation would require bipartisan support (a 60 vote supermajority) or must be contained in Budget Reconciliation (a simple majority using the Vice President’s tie-breaking vote). Such legislation is generally expected toward the latter half of 2021.
In short, I think we’ll see a COVID-19 stimulus bill in the first 100 days, followed by carefully tailored tax legislation designed to garner enough support to pass both houses.
Kathryn: What I'm hearing is that while tax may not be the top priority in the first 100 days, this 100 day period is actually a crucial time to prepare for what's ahead. That tells me that tax leaders should be focused on modeling, scenario planning, proactive tax planning, and engagement with policymakers over the next 100 days.
Given all that you’ve just described about potential shifts in domestic and international tax policy, how can business leaders best make their voice heard?
Chairman Camp: Over the next six months, as policy is formulated and legislation is drafted, Tax directors specifically have the opportunity to help members of Congress and their staff understand the bottom-line impact of changes to tax policy. Before engaging policy makers, Tax leaders should model the effects of potential proposals and bring data to the discussion, including potential impacts on headcount, job growth, or domestic investments. Data from constituents helps Congressional leaders make better decisions.
Kathryn: Thank you, Chairman Camp, for sharing those ‘no regret’ actions: modeling tax proposals and engaging policy makers with data on the impact those proposals could have on business operations.
As we step into a new legislative calendar in just a few weeks, what one word would leave us with?
Chairman Camp: Vigilance. Alertness to potential policy changes will be necessary.
And you, Kathryn?
Kathryn: Hope. These tough days are a moment in time, but we’ll get through it. Together.