What the Election May Mean for U.S. Businesses Operating Globally
Biden’s tax proposals include increases in the corporate tax rate, but it is unlikely that Congress will agree on an overhaul of tax policy before 2022.
While trade agreements may not be a top priority in a Biden administration, there is discussion of lifting the national security tariffs on steel and aluminum in 2021.
We could see executive orders early in a Biden administration focused on global supply chains, especially for medical supplies.
The last four years have taught us that predicting election outcomes is difficult. Trying to predict the policy changes that follow those elections can be even more challenging.
The recent presidential election of Joe Biden brings a new administration and policy platform that could impact both U.S. and global businesses alike. However, while policy changes are likely, the election results in the House and current prediction for a Republican-controlled Senate through 2022 may temper those policy changes.
We recently caught up with Omar Nashashibi, founder of The Franklin Partnership in Washington, D.C., to discuss policy issues that could impact U.S. businesses operating globally. The following are observations in key policy areas we will monitor closely moving forward.
The business disruptions and still elevated unemployment challenges created by the coronavirus will likely make the economy the primary focus in the near-term. Stimulus will be a priority, but those close to negotiations are predicting a much more modest, and targeted, stimulus package — likely significantly less than the $1.9 trillion – $2.2 trillion packages discussed prior to the November election.
Policymakers continue to receive pressure to provide support for the airline industry, the service sector including restaurants and hotels, and retail, especially individually owned local stores. This may also include live entertainment industries, from sports to theatre and concerts, and their supporting businesses.
Should the Senate election outcome result in Republicans maintaining control, it is unlikely Congress could agree on an overhaul of tax policy or rate changes until 2022, after the next mid-term election.
Among Biden’s tax proposals is a 28% corporate tax rate (an increase from the current 21%), as well as a doubling of the top capital gains/dividend rates from the current 20% to 39.6% for high income taxpayers (similar to his proposed top rate for individual taxpayers).
The discussion in Washington was that had Democrats taken control of the Senate and White House while maintaining control of the U.S. House, the final corporate tax rate may have been closer to 25%, which would still make the U.S. more globally competitive than the prior 35% rate. If the capital gains and dividend increase were to happen, certain tax benefits utilized by U.S. companies selling globally, such as the Interest Charge Domestic International Sales Corporation (IC-DISC), will be eliminated.
While a Republican-controlled Senate may lower chances of significant increases in these rates, many members of both parties quietly agree that the government must raise more revenue to address the growing deficit due to COVID-19 spending. However, as the focus is on Congress, international discussions over a global minimum tax are predicted to continue and likely move more quickly in 2021.
Trade and tariffs
While there is clearly a philosophical difference between Biden and Trump in their approach to trade agreements, and more specifically the use of tariffs for leverage with trade agreements, insiders in Washington are not predicting removal of the Section 301 tariffs on China in the near-term without some accommodation in return. It is possible, however, that the approximately 600 COVID-19 relief products purchased from China already pending review may receive an exemption from the tariffs in the near-term to support the U.S. response to the pandemic.
Many in Washington do not anticipate trade agreements will be a priority in a Biden administration, but there is discussion of lifting the Section 232 national security tariffs imposed on steel and aluminum. Some are estimating it could happen as early as the first half of 2021. Reports are suggesting Biden is anxious to address trade relations with allies and eventually lift tariffs on goods from Europe and other traditional partners.
Use of executive orders as a policy tool
Particularly in the early months of the Biden administration, many anticipate Biden will issue a number of executive orders and other actions directly from the White House, reversing certain actions but also focusing on global supply chains. In addition to medical supplies, policymakers in Washington are considering tax incentives and possibly coercive measures (e.g., government contracting or directing federal and state governments to buy U.S.-produced goods) in certain supply chains from telecommunications to dual-use products. There also remains the possibility a Biden administration could invoke the Defense Production Act to redirect resources to U.S. efforts.
Environmental and energy policy could take center stage for regulators, as those close to Biden indicate he will likely take steps to re-enter the Paris Climate Agreement or provide incentives to states to meet similar standards. Regulations covering export controls to China, Russia, and others may also continue and expand further, causing disruptions in certain supply chains.
How we can help
CLA’s global team can help you navigate the changing landscape of international business. As with any change in administration, the situation is fluid right now and we will continue to update these and other policy matters as material changes occur. Visit our post-election resource page to stay up to date.
CLA has contracted with Franklin Partnership and Omar Nashashibi to provide the content for article.
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