As published on tax-news.com, Friday November 8, 2019.
On November 1, 2019, the presidential campaign of United States Senator Elizabeth Warren (D-MA) published plans for a system of universal Medicare that will be partially funded by tax increases on large corporations and wealthy individuals, as well as by stricter anti-tax avoidance rules.
To prevent large corporations from reducing their exposure to US corporate tax by shifting profits to low-tax jurisdictions, Warren's plan would impose a country-by-country minimum tax of 35 percent – the headline rate of corporate tax in place prior to the Tax Cuts and Jobs Act (TCJA) – which companies would not be permitted to defer as under previous rules.
Under this element of the plan, corporations would have to pay the difference between the minimum tax and the rate in the countries where they book their profits. According to the plan, under this regime, an American corporation booking profits in a jurisdiction with a zero percent corporate tax would need to pay a 35 percent tax rate to the US Government on these profits, which represents the difference between the new minimum rate (35 percent) and the foreign rate (zero percent).
Additional revenue would be raised by changing the depreciation deduction. Under the TCJA, the additional first-year depreciation deduction percentage was increased from 50 to 100 percent for assets placed in service before January 1, 2027. Under Warren's proposals, this would be replaced by a depreciation system that "more accurately reflects" the depreciating value of assets. The measure is estimated to raise USD1.25 trillion over ten years.
In April 2019, Warren also proposed the Real Corporate Profits Tax, under which companies with profits in excess of USD100m would pay a corporate surtax of seven percent.
Warren's plan also includes a financial transactions tax to raise an estimated USD800m in additional tax revenue over a ten-year period. Also, a fee would be imposed on the largest banks to discourage them from taking on risky liabilities.
For wealthy individuals and families, the plan includes the proposed "Ultra-Millionaire Tax," announced by Warren in September 2019. This would impose a two percent tax on an individual's net worth above USD50m, and a three percent tax on wealth above USD1bn to raise an estimated USD1 trillion in additional tax revenue.
Furthermore, the Warren plan would change the way capital gains on share sales would be treated for the wealthiest one percent of households by introducing a mark-to-market system. Under this measure, capital gains would be taxed on an annual basis rather than at the time of sale at personal income tax rates, although retirement accounts would be excluded from this change. Individuals would still only pay taxes on gains and could use current losses to offset future taxes.
In the area of anti-avoidance and enforcement, the Warren plan proposes the following measures:
Substantially increasing funding for the IRS, including the Criminal Investigation Division.
Expanding third-party reporting and withholding requirements.
Strengthening enforcement of the Foreign Account Tax Compliance Act (FATCA), which would entail matching FATCA reports to tax returns and instituting sanctions for non-compliant foreign financial institutions.
Simplifying tax filing obligations including through the adoption of Warren's proposed Tax Filing Simplification Act and using "smart returns" to improve tax compliance rates.
Increasing the non-filer compliance program, strengthening reporting requirements for international income, using existing currency transaction reports to enforce cash income compliance, and increasing reporting requirements for virtual or cryptocurrencies.
Allowing employees who disclose tax evasion and abuse to use the protections of the False Claims Act and other whistleblower protections.