Breaking Down the Tax Implications of the Reconciliation Bill

December 8, 2021

House leaders passed H.R. 5376 on November 19, 2021, and the Senate released its own version on December 11. The bill would implement President Joe Biden’s economic agenda, including a sweeping social spending and tax package. The bill proposes changes to international provisions like GILTI and FDII, and green energy incentives.

What do the proposed tax and spending changes amount to?

Spending in the reconciliation bill totals $1.64 trillion, which is offset by $1.27 trillion on net.

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How does the reconciliation bill affect corporate taxes?

  • The senate version of the bill would impose impose a 15% minimum corporate levy on income that corporations report on their financial statements or “book income,” with adjustments. The provision would apply to corporations with such income totaling over $1 billion (and S. companies with foreign parents would also need to have at least $100 million in income). Such companies have traditionally been able to pay little-to-no taxes because they were eligible for a long list of credits and deductions.
  • It also includes a 1% excise tax on companies when they buy back their own stock. The provision wouldn’t apply to employee retirement plan funding or if total transactions for the year are less than $1 million. The 21% corporate rate is left untouched, maintaining a key part of the 2017 Tax Cuts and Jobs Act.

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What are the changes to international taxes?

  • Reducing deductions for foreign income of U.S. companies, which would yield a 15% global intangible low-taxed income (GILTI) rate and 15.8% foreign-derived intangible income (FDII) rate according to a summary from the House Rules Committee. GILTI would also be calculated on a country-by-country basis under the measure.
    • The House Rules Committee summary states: “Under current law, if the section 250 deduction exceeds its taxable income (determined without regard to section 250), the deduction is reduced by the excess. Under the provision, the taxable income limitation is repealed. Therefore, if the section 250 deduction with respect to GILTI and FDII exceeds taxable income, the excess is allowed as a deduction, which will increase the net operating loss for the taxable year.”
  • Increasing the base erosion and anti-abuse tax (BEAT) to 18% from 10% by tax year 2025.
    • 10% in 2022
    • 5% in 2023
    • 15% in 2024
    • 18% after 2024

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What are the proposed renewable energy incentives?

Some $300 billion – by far the largest component of climate-related spending in the package – would go to expanding a slew of tax credits for renewable power, electric vehicles, biofuels and energy efficiency. The credits could accelerate investments in both utility-scale and residential clean energy as well as electricity transmission, power storage, and clean-energy manufacturing.

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Budget Reconciliation Watch

This watch page brings together resources on tax provisions featured in the budget reconciliation bill, including the latest news from our global team of reporters, links to key documents, and our growing body of analysis.

Tax Reform Roadmaps and Resources

Access a dedicated landing page for tax reform guidance, including source material, portfolios, chart builders, fast answers, and roadmaps. We cover 163(j), GILTI, bonus depreciation, and more.

Section 250 Deduction for FDII and GILTI Regulations

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