American Jobs Plan Analysis
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American Jobs Plan Analysis

Brownstein Client Alert, March 31, 2021

Earlier today, during a speech in Pittsburgh, Pennsylvania, President Joe Biden unveiled the American Jobs Plan—the first part of a two-tranche strategy modeled after the post-Depression-era New Deal program to spur economic revitalization. The president explained that the second part of the plan is the American Families Plan and will be released later this month.

The speech and accompanying $2.3 trillion package focus on and redefine infrastructure spending. While the Biden plan includes $621 billion in spending for traditional infrastructure priorities, such as roads, bridges and tunnels, it also proposes investments in several nontraditional programs. This includes:

  • $111 billion in water infrastructure
  • $100 billion in digital infrastructure, such as broadband access for rural communities
  • $100 billion in energy infrastructure
  • $213 billion to build and retrofit affordable housing
  • $137 billion in early education, K-12, and community colleges
  • $28 billion for federal building and veterans’ hospital upgrades
  • $400 billion in the care economy for elderly and disabled Americans
  • $480 billion in research and development and manufacturing incentives
  • $100 billion in workforce training initiatives

These changes would be paid for by the Made in America Tax Plan, which includes raising the corporate tax rate from 21% to 28%, as well as a number of other tax changes described below. The administration estimates the new taxes will generate $2 trillion over the next 15 years.

The plan is an ambitious opening gambit designed to unite a divided Democratic caucus, though it does little to entice Republicans to support the president’s efforts. In the days leading up to the plan’s release, progressives and moderates criticized the proposal for opposite reasons—centrists balked at such a large spending package financed by corporate tax increases and progressives said the package is insufficient to address the growing threat of climate change. Intraparty clashes signal a difficult road ahead for the Biden administration.

Below are the Brownstein Government Relations team’s Key Takeaways from the bill:

  1. Everything Is Infrastructure. Since then-candidate Biden released his Build Back Better agenda, it was clear that Democrats would take a very broad view as to what comprises infrastructure. The bill does not stray too far from the president’s campaign promises, with investments in transportation, housing, the care economy, education and research and development. There is widespread agreement that infrastructure upgrades are long overdue, with billions of dollars in repairs needed for roads, bridges and tunnels. The pandemic also highlighted the problems with outdated broadband infrastructure, creating a “homework gap” for students who cannot access internet at home. Democrats also argue that other priorities in the proposal should also be in the bill since these issues either threaten existing infrastructure (e.g., a failure to address climate change) or because they provide an essential support for working families (e.g., affordable housing, worker training, child and elder care).
  2. The Infrastructure Plan Is a Climate Plan. Biden promised a climate-focused infrastructure plan and delivered with significant investments in energy infrastructure and environmental remediation and restoration. This translates into $100 billion in energy investments, with many provisions specifically targeted toward decarbonizing the electricity sector. The plan promises the establishment of an Energy Efficiency and Clean Electricity Standard (EECES). The plan also highlights the use of union labor to carry out restoration efforts. Additionally, $174 billion would be directed toward investments in domestic electric vehicle (EV) manufacturing and infrastructure, $27 billion in Clean Energy and Sustainability Accelerator investments for building and transportation upgrades, and $180 billion in funding for research and development (R&D).
  3. Bipartisan Priorities. While the $1 trillion in spending reserved for traditional infrastructure projects is mostly bipartisan, most of the debate will focus on the other proposals. It is unclear whether Republicans will view spending on affordable housing, elder care and schools as appropriate for an infrastructure bill. However, nontraditional priorities such as research and development and manufacturing are of interest particularly in light of gaps in the domestic supply chain exposed by the pandemic. As China eclipses the U.S. in terms of R&D investments, lawmakers on both sides of the aisle believe that increasing investment in this space is key to maintaining U.S. leadership. Investments in R&D would be paired with bolstering domestic manufacturing to convert research and innovation into sustained economic growth. There could be bipartisan consensus on a narrow infrastructure bill that includes traditional priorities, as well as increases in the R&D credit, and manufacturing incentives to encourage domestic production.
  4. Where Is the Manufacturing Tax Credit? While the American Jobs Plan makes investments to revitalize manufacturing, it does not include any mention of a tax credit to incentivize domestic manufacturing. During the campaign, then-candidate Biden often discussed a “Made in America” tax credit—a 10% tax credit for companies making investments that will create jobs for American workers and accelerate economic recovery. The credit was supposed to help revitalize existing, closed or closing facilities and reward those that created good-paying jobs. The proposal is largely silent on domestic manufacturing tax incentives, including only a vague reference to “a tax credit to support onshoring jobs.”
  5. Good-Paying Jobs Are a Metric for Success Across the Board. Nearly every segment of the Biden plan translates into good-paying union jobs. According to the last jobs report from the U.S. Labor Department, 9.97 million Americans are unemployed, though 18.9 million Americans continue to receive weekly unemployment benefits. The Biden administration hopes that a summer infrastructure bill would help create a job boom, the effects of which would be felt before the November 2022 midterm elections. In addition to construction jobs, each segment of the infrastructure package from energy to the care economy, is intended to boost job creation—both from government jobs through a new Civilian Climate Corps, to private sector jobs in the elder care space.
  6. Even Tax Credits Are Tied to Good-Paying Jobs. In the American Jobs Plan, the president proposes massive investments in green energy, including modernizing power generation to deliver clean electricity. To achieve this, he proposes an expanded direct-pay investment tax credit and production tax credit for clean energy generation and storage. The document notes that these credits will be paired with strong labor standards to ensure that jobs created are good-quality jobs, with the guaranteed choice to join a union. To date, investment tax credits have never been tied to paying prevailing wages. This seems to suggest that Internal Revenue Code Secs. 45 and 48 will now include prevailing wage requirements—an unprecedented move.
  7. Corporate Rate Increases Point to Reconciliation. The American Jobs Plan includes a Made in America Tax Plan to pay for the $2 trillion package. It includes proposals to increase the corporate tax rate from 21% to 28%, double the tax on Global Intangible Low-Taxed Income (GILTI) from 10.5% to 21%, impose a 15% minimum tax on corporate book income, repeal the Foreign-Derived Intangible Income (FDII) deduction, eliminate tax benefits for the fossil fuel industry, increase corporate tax enforcement, and more. The international tax provisions partially dismantle the tax system put in place by the 2017 Tax Cuts and Jobs Act, drawing criticism from its Republican author. For the American Jobs Plan to have any chance at bipartisanship, it would have to drastically change the proposed payfors. Otherwise, reconciliation with a straight party vote will be the only path forward for this infrastructure proposal.

Below is a summary of the spending and revenue-raising proposals included in the American Jobs Plan:

I. Tax Provisions

  1. Set the Corporate Tax Rate at 28%. The President’s tax plan will increase the corporate tax rate from 21% to 28%. When the corporate tax rate was reduced by the Tax Cuts and Jobs Act (TCJA), Democrats lamented that it was not accompanied by a lasting boost in jobs or investment. Senate Finance Committee Chair Ron Wyden (D-OR) has called for Congress to adopt a framework based on two propositions: (1) multinationals must pay their “fair share” of taxes, and (2) the tax code should reward companies that invest in the U.S. and create good-paying jobs. Republicans counter that corporate rate increases will be borne by American workers through reduced wages and lower retirement account values. The nonpartisan Joint Committee on Taxation estimates that 25% of the corporate income tax is borne by workers.
  2. Discourage Offshoring by Strengthening the Global Minimum Tax for U.S. Multinational Corporations. This proposal increases the minimum GILTI tax on U.S. corporations from 10.5% to 21%, and calculates it on a country-by-country basis to discourage offshoring. It also eliminates the TCJA rule that allows U.S. companies to exempt their first 10% of return on foreign assets when they locate investments in foreign countries. GILTI is income earned by foreign affiliates of U.S. companies from intangible assets such as patents, trademarks and copyrights in locations with low tax rates.
  3. End the Race to the Bottom Around the World. This proposal denies the deduction to foreign corporations on payments that could allow them to strip profits out of the U.S. if they are based in a country that does not adopt a strong minimum tax. It further replaces the TCJA’s Base Erosion Alternative Minimum Tax (BEAT). The BEAT is a minimum tax imposed on corporations that make certain deductible payments to foreign-related parties. Democrats have been disappointed that the BEAT has failed to capture revenue from income stripping of foreign companies, while also mistakenly harming companies that are investing in non-profit-shifting activities, such as renewable energy.
  4. Prevent U.S. Corporations from Inverting or Claiming Tax Havens as Their Residence. Under current law, U.S. corporations can acquire or merge with a foreign company to minimize U.S. taxes by claiming to be a foreign company, even though their places of management and operations are within the U.S. President Biden is proposing to make it harder for U.S. corporations to invert. This will backstop the other reforms that should address the incentive to do so in the first place.
  5. Deny Companies Expense Deductions for Offshoring Jobs and Credit Expenses for Onshoring. GILTI and Foreign-Derived Intangible Income (FDII) are both contributing factors to moving jobs and equipment offshore, giving companies tax incentives for taking steps that hurt domestic jobs. This proposal ensures that companies can no longer write off expenses that come from offshoring jobs that are deductible under current law. Instead, the proposal provides a tax credit to support onshoring jobs.
  6. Eliminate a Loophole for Intellectual Property That Encourages Offshoring Jobs and Invest in Effective R&D Incentives. This proposal eliminates the deductions for TCJA’s FDII provision. FDII is a portion of a U.S. corporation’s intangible income from foreign sources, and TCJA allows a deduction of a specified percentage of FDII. All of the revenue from repealing the FDII deduction will be used to expand R&D investment incentives.
  7. Enact a Minimum Tax on Large Corporations’ Book Income. Proposes a 15% minimum tax on the income corporations use to report their profits to investors (book income). The TCJA repealed the alternative minimum tax for corporations. Democrats intend to target companies that reported large net profits while paying little or no federal income tax. However, few details on the minimum book tax have been provided, and critics claim it will add unnecessary complexity to the tax code.
  8. Eliminate Tax Preferences for Fossil Fuels and Make Sure Polluting Industries Pay for Environmental Cleanup. Democrats say the current tax code includes billions of dollars in subsidies and special foreign tax credits for the fossil fuel industry. Oil and gas companies, for example, can take a tax deduction for a majority of their costs for drilling domestic wells. As part of the president’s commitment to put the country on a path to net-zero emissions by 2050, this proposal eliminates all special preferences. This coincides with Sen. Wyden’s (D-OR) proposal to replace existing provisions in order to equally incentivize all types of clean energy production.
  9. Ramping Up Enforcement Against Corporations. Over the past decade, audits on large corporations have decreased, from substantially all large corporations to less than half. This proposal pairs tax increases mentioned above with additional IRS funding to ensure the agency is able to increase tax audits on corporations.

II. Spending Proposals

Click here for a summary of spending proposals included in the American Jobs Plan.

This document is intended to provide you with general information regarding the American Jobs Plan. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

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