What CFOs can deduce about President-elect Biden’s tax policy

CFO Insights


No new taxes—for those who make less than $400,000 a year, anyway.

That was the bumper-sticker message about taxes during Democratic candidate—now President-elect—Joe Biden’s campaign for the nation’s top job. While his proposals may be layered and complex, Biden’s ideas on tax can be compressed into a general aim: making sure corporations and high-net-worth individuals pay their “fair share” of taxes.

Specifically, that means undoing much of the corporate tax rate cut enacted in the Tax Cuts and Jobs Act (TCJA) of 2017. Promoted as a once-in-a-generation opportunity to reform the tax system, the law dropped the top corporate income tax rate from 35% to 21%. Biden proposes lifting it to 28% and modifying the global intangible low-taxed income (GILTI) provision by raising the tax rate on such income to 21% from 10.5%, among other changes. The corporate alternative minimum tax (AMT), which the TCJA repealed, would be replaced with a new levy (15%) on certain companies that have large “book” incomes but pay no federal income taxes. It is unknown whether this so-called minimum tax would operate as another corporate AMT or whether it would align book and tax more significantly. Biden also proposes to pare back certain benefits (such as potentially repealing like-kind exchanges) and erase others (most notably, tax incentives related to the fossil fuel industry).

High-net-worth individuals—households with annual incomes above the $400,000 threshold—would also face tax increases. The value of itemized deductions would be capped at 28%, and the Pease limitation would be reinstated for those taxpayers. Biden also proposes to significantly cut back certain benefits (such as the 20% deduction for certain pass-through income). For those with taxable income of more than $1 million, long-term capital gains and certain dividends would be taxed at ordinary tax rates. And the top rate on ordinary income would creep up from 37% to 39.6%, restoring it to its pre-TCJA status for those taxpayers with more than $400,000 in taxable income. The estate tax would be reset to its 2009 parameters, meaning the rate would increase from its current level of 40% back up to 45%, and the exemption, now $11.58 million per person adjusted annually for inflation, would drop substantially. (The exemption was $3.5 million in 2009.) Biden also proposes repealing the ability to pass appreciated assets at death without triggering capital gains taxation by ending the step-up in basis that is allowed under current law.

It’s worth remembering, though, that any president’s tax plan will be subject to various tax policy considerations (outside of regulatory changes), which generally originate in Congress. How much, if any, of it becomes law still depends on many factors, not least of which is party control of the House and Senate.

Democrats will retain their majority in the House in the incoming 117th Congress, although by a far smaller margin than they currently enjoy. Control of the Senate, however, currently is unclear and hinges on the outcome of two runoff races in Georgia, which are scheduled for January 5. Republicans so far have won 50 Senate seats in the next Congress compared with 48 for Democrats (which includes two independents who caucus with that party). If Republicans win at least one of the Georgia races, they would hold a clear majority, which means Biden would have to garner at least some level of GOP support in the Senate to move significant tax legislation.

Democrats could take the Senate majority if they sweep both of the Georgia runoffs. That outcome would leave the party headcount tied at 50 seats each, but Vice President-elect Kamala Harris would tip the balance in favor of the Democrats, since, in her role as president of the Senate, she would cast the deciding vote whenever the two parties were deadlocked. It also would mean that Biden and an all-Democratic Congress would have the option of moving a significant tax and spending bill under the budget reconciliation process, which allows for Senate passage of certain tax and spending legislation with just a simple majority vote, rather than the three-fifths supermajority typically required to overcome procedural hurdles for legislation in that chamber. But, considering their relatively narrow margins of control in the House and Senate, Biden and Democratic congressional leaders still could face challenges in moving a tax package as they attempt to balance the ideological tensions that sometimes emerge between lawmakers in the moderate and progressive wings of their own party.

In this issue of CFO Insights, we’ll help CFOs prepare for possible tax policy changes ahead. Which issues should they be most concerned about? How should that affect the guidance they give their VPs of tax and tax directors? And how likely is it that anything will change in the near term?

What CFOs can deduce about President-elect Biden’s tax policy

A presidential prerogative

Once campaign posturing ends, the work of making law begins. For the 46th president, that will likely mean focusing his attention on stabilizing a pandemic-wracked economy. Assuming the current lame-duck session lives up to its name, one early priority for Biden once he takes office seems certain to be shepherding through Congress another COVID-19-relief package. However, the size of the relief bill could be constrained by resurgent concerns about the swelling deficit, which was more than $3 trillion in fiscal year 2020 and is already projected to reach about $1.5 trillion in fiscal year 2021.1

Biden’s proposed changes to the tax code would generate gross revenue of between $3 trillion and $4 trillion over 10 years, according to estimates from various nonpartisan think tanks.2 Those funds are not expected be used to pay down the debt, but are instead intended to offset other investments in such areas as climate change, health care, infrastructure, and college affordability, as well as to provide tax relief for lower- and middle-income taxpayers. Whether, and in what order, the administration might seize such priorities is impossible to tell at the moment.

In the meantime, Biden’s plan also offers visibility into what he regards as the most pressing business issues.

  • Supply chains that are overreliant on foreign nations. Building on one of the pandemic’s lessons, the plan deploys a mix of credits and penalties to encourage more domestic manufacturing. On top of a 28% corporate tax rate, Biden proposes a 10% “offshoring tax penalty” on net profits earned by foreign subsidiaries attributable to sales and services (including call centers) delivered in the United States and a 10% refundable “Made in America” tax credit applicable to certain expenses or investments incurred to return production to the United States such as by revitalizing facilities and increasing wages. The plan also proposes to deny deductions associated with moving jobs and production offshore, strengthen anti-inversion rules, and establish a “claw-back” provision that would require companies to return public investments and tax benefits when they offshore US jobs.
  • Focus on global book income of US companies. The complexity of the tax code and the differing goals of tax writers and accounting standard-setters means companies present different sets of books for financial statement purposes and for tax purposes. Biden has argued that by availing themselves of various credits, deductions, and other tax provisions, some companies pay roughly $0 in federal income taxes despite reporting large profits to their shareholders. To address this perceived disparity, he has proposed a 15% minimum tax on global book income for corporations with reported revenue of at least $100 million in their financial statements.
  • Tax collections from pass-through entities. The TCJA included a provision generally granting a 20% deduction for qualified business income to certain business owners of most pass-through businesses. According to the Joint Committee on Taxation staff, the deduction would, on average, provide tax savings to those business owners of roughly $50 billion per year from 2021 through 2025, when it is scheduled to expire (along with other changes to the individual side of the tax code enacted in the TCJA).3 Biden’s plan proposes to phase out that deduction immediately for taxpayers with taxable incomes of more than $400,000.
  • Promoting investment in specific sectors. Biden proposes to eliminate certain current-law tax preferences that he says benefit the fossil fuel industry, the real estate industry, and the pharmaceutical industry (such as repealing the deduction for costs of direct-to-consumer advertising). His tax plan instead seeks to spur investment in renewable energy, energy efficiency, and green jobs by, for example, expanding tax credits for production of and investment in renewable energy (such as wind and solar) and bolstering tax incentives for carbon capture and sequestration.
  • Penalizing large financial institutions and pharma companies. Biden also plans to impose a “risk fee” on certain large financial institutions (those with more than $50 billion in assets), as well as penalize pharmaceutical companies that raise drug costs by more than the rate of inflation.


man and vast sky

Outcome unknown

Incoming presidents often experience a “honeymoon” period where they can achieve success on significant legislation, but no president's proposed tax plan survives completely intact once Congress sets to work on it.

Still, CFOs need to prepare their companies to address implications of possible changes to the tax code. After all, tax is a cost that is generally agreed to be borne by some combination of employees (in the form of lower wages), customers (higher prices), and shareholders (reduced return on equity). And it’s unclear what specific provisions of the TCJA may remain intact. For example, will companies still be able to expense R&D costs as they can now? Or will the TCJA’s requirement that they be amortized over five or 15 years (depending on where the research is done) kick in as scheduled in 2022? Here are some questions finance leaders should consider in case key pieces of Biden’s tax plan are enacted:

  • Will it remain economical to retain offshore operations? The doubling of the Global Intangible Low Tax Income (GILTI) tax rate—combined with the elimination of the exemption from GILTI for a 10% return on the taxpayer’s qualified business asset investment—may lead companies to explore domesticating operations, depending on what other changes have been made to the corporate tax rate. In doing so, they could potentially benefit from the lower effective rate on foreign-derived intangible income, the accelerated depreciation, and the 10% advanceable tax credits, among other incentives currently in the tax code.
  • Should future M&A deals be structured differently? The TCJA’s reduction of the corporate tax rate resulted in a significant decrease in the tax cost associated with taxable M&A deals. The Biden plan, which could also end any capital gains preference for certain high-income shareholders, may boost the appeal of tax-deferred deals. In fact, taxpayers who have pending M&A deals may benefit from closing them this year, if doing so does not affect pricing or other aspects of the transaction, to buffer against a possible tax increase, in 2021.
  • How might labor costs change? Biden wants to expand the payroll tax to increase its impact on high-income individuals. Under current law, a 6.2% payroll tax to fund Social Security is collected from both the employer and employee (for a combined rate of 12.4%) on the first $137,700 of income (the wage cap for 2020, indexed for inflation). Under Biden’s tax plan, another 6.2% in Social Security taxes would be collected from both the employer and employee on wages and other compensation above $400,000, although it is not immediately clear if that wage cap would be adjusted for inflation in future years. Some CFOs may not welcome adding a second tier to the Social Security tax. (Notably, this is one piece of the Biden plan many think is least likely to be enacted in an evenly divided Congress. One of the procedural constraints around budget reconciliation is that the bill may not touch Social Security, leading many to conclude that this very large payroll tax increase is not likely to become law in the next two years. However, taxpayers would need to watch for changes through the Treasury, especially regarding self-employment taxes.)
  • Does investor relations need a new story to tell? When corporate taxes rise, stock prices can head in the opposite direction. Shareholders who see their dividends shrinking may need to better understand the long-term rationale for holding on to their shares. In addition, Biden’s proposal to increase the top tax rate for capital gains—from 23.8% to 39.6%—could spur an end-of-year sell-off by investors looking to take advantage of the lower rate this year.

The urgency of the pandemic, plus the reality of historic budget deficits, are likely to dominate Biden’s year-one agenda, and the fact that Congress would at most include 50 Democratic senators could constrain his ability to move expansive tax proposals. Moreover, the economic recovery may be too fragile to sustain tax increases. Nonetheless, it is not too early to start evaluating the proposals being put forward, modeling potential outcomes, and planning the appropriate actions to take if and when these proposals transform from high-level plans and talking points to fully framed legislation with substance and effective dates.

orange pumpkin


1 Daniel Bachman, “United States Economic Forecast, 3rd Quarter 2020,” Deloitte Services LP, September 14, 2020.

2 Gordon B. Mermin et al., “An Analysis of Former Vice President Biden’s Tax Proposals,” Tax Policy Center, March 5, 2020; Garrett Watson, Huaqun Li, and Taylor LaJoie, “Details and Analysis of President-elect Joe Biden’s Tax Plan,” Tax Foundation, October 22, 2020.

3 Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2020-2024 (JCX-23-20), November 5, 2020.

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Jonathan Traub
Managing principal,

Deloitte Tax LLP

Victoria Glover
Deloitte Tax LLP

Jeff Kummer
Managing director,
Deloitte Tax LLP



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