In the second of our two-part video series on the 2020 US election and its effects on Canadian cross-border businesses, Tara Benham, National Tax Leader, is joined by Gibson Turley, Partner, US Corporate Tax, to discuss Biden's Democratic Party platform and how it relates to Canadian companies.
0:43: What is the Democratic Party platform and how could a win impact tax policy?
1:59: What is the impact of COVID-19 on US tax?
3:04: What is the impact of the proposed changes on Canadian companies operating in the US?
- My name is Tara Benham and I'm the National Tax Leader for Grant Thornton, Canada. This is the second in our two-part series where we discuss the US election and how it will impact Canadian businesses who are operating in the US. I'm joined by Gibson Turley, a US corporate tax partner in our Vancouver offices. Gibson is going to give us insight into Biden's Democratic Party platform and how it relates to Canadian companies. Welcome, Gibson.
- Hi, Tara. Thanks for having me. So to start, the US saw significant changes in the Tax Cuts and Jobs Act at the end of 2017. My first question for you, Gibson, is can you give me an overview of the platform for the Democratic Party and how the outcome of this election could impact that policy?
- Candidate Biden and the Democratic plan is really set around not raising taxes on anyone making less than $400,000. As a result, tax increases are focused more on corporations, wealthy individuals. From a corporate standpoint, the Democratic plan would raise the federal corporate income tax rate from 21% to 28%. It would also repeal the immediate expensing of US-based capital asset additions. Democratic plan is really focused around job creation in the US with intention to reopen, retool US manufacturing through a made-in-America 10% advanceable tax credit, advanceable just meaning that it'll be available immediately without waiting to file it on an income tax return and claim it. Similarly, the plan has a 10% penalty that would penalize companies for offshoring jobs, which would bring their rate on these profits to 30.8%. You know, lastly, on major corporate tax provisions, the new minimum tax based on book income would apply a 15% minimum tax on companies reporting more than $100 million in profits but paid zero tax.
- So my next question is a little more current. And that is how does COVID-19 impact the policies that we've been talking about?
- You know, COVID-19, when the pandemic started, the US economy was doing really well with respect to unemployment. Unemployment was at the lowest rate since the late 1960s. It'll be interesting to follow whether these tax increases proposed in the Democratic plan would make sense in light of what COVID-19 has done to the overall economy and debt of the US. Typically, one would think maybe you need stimulus to get the economy going again. And currently stimulus seems to be on everyone's minds. There's talk of another stimulus bill before the election. The CARES Act was already $2 trillion and this new bill would be similar in a range of about 1.6 to 2.2 trillion. These are very, very large assistance programs. And they've included a lot of tax incentives. So I think the big question's going to be do these tax increases make sense immediately following the stimulus incentives and ultimately, what will the overall economy look like in January?
- So now to my final question and the one that I think our business owners really wanna hear. And that is how will these proposed changes impact Canadian companies who are currently operating in the US or planning to expand?
- Let's start with the discussion on this around that a Democratic win in the presidential race doesn't necessarily guarantee that we have tax policy immediately, that, you know, there might not be any changes right away. At a very high level, all US tax legislation begins in the House of Representatives, which is currently controlled by the Democrats. Once approved there, the same bill must be approved by the US Senate also, which is currently controlled by the Republicans. All eyes will be on both the presidential race and the US congressional races. Should the Republicans control one side of Congress, bipartisan tax reform may be difficult to achieve. And even if the Democrats win control of the Senate, they may not achieve the 60 seats needed to block the filibuster under the Senate cloture rules. Tax reform is typically easier when one party controls the House, Senate, and presidency. Those were the conditions in 2017 when TCJA was passed and was the largest change to US tax policy since 1986. So if this Democratic plan is undertaken, becomes law, it would make it more expensive from a federal income tax standpoint for Canadian businesses to expand in the US. That is, the Democratic plan raises the federal income tax rate from 21 to 28% and reduces the ability to immediately write off capital assets. While this may make it more expensive tax-wise in the US for Canadian companies, it could also make Canada more attractive from a competitive standpoint as its current tax rates would be more competitive vis-a-vis the US rates.
- Thanks Gibson, your reading glass into the future with a Canadian lens is really fascinating. And to our viewers, thank you for joining us. Check out our first video in the series to hear what you need to know with a Trump Republican win. And of course, following the election, we will provide further insights to help Canadian businesses operating in the US. Alternately, visit our website to learn more.
Watch Part 1: How a Trump win impacts Canadian companies with US operations
Julia Klann, US Corporate Tax Leader, Eastern Canada joins Tara Benham to discuss Trump's Republican Party platform and how it relates to Canadian companies.
For more related Insights, please visit our 2020 US election hub.