A New Tax Climate
President Biden has proposed raising the corporate tax rate to fund the improvements (and other non-infrastructure items) in his infrastructure bill. The corporate tax rate could rise to 28%, up from 21%. No doubt Congress will make significant changes to the bill – it is already getting pushback from Republicans and some moderate Democrats opposed to higher taxes – but realistically speaking, many companies could face a tax increase in 2022 if it passes. Not to mention the attempt to tax worldwide income not previously taxable in the U.S.
Many of our clients have been keeping a close eye on the bill and have been contacting us with concerns about what a potential tax increase means for them. Although no one likes paying higher taxes, as we’ve found in the past, a higher-tax environment doesn’t have to limit companies’ growth.
Given that the parts of the infrastructure bill that actually deal with infrastructure will likely spark massive economic activity and create jobs, many companies may actually find themselves with more opportunities to expand than they’ve seen in a while. With vaccines rolling out, pandemic aid still flowing and the consumer savings rate high, JPMorgan Chase’s Jamie Dimon just predicted an economic boom that could run into 2023. Anyone remember the Roaring 20’s? Without the Crash of 1929, of course. We’re already seeing some of the effects of higher vaccination rates on some of the most restricted industries here in New York. When I’m in New York City I can see how many people are feeling comfortable dining out now that the weather is getting warmer and they’ve been vaccinated.
That said, many companies will certainly benefit from starting their tax planning early to optimize the strategies they use for 2021 and 2022 to conserve cash. While we don’t have all the specific details of President Biden’s tax policies yet, which will certainly change by the time Congress gets done with them, it isn’t too early to start thinking about the scenarios that may be ahead and how your company will respond to them. Some companies that are making large capital investments in 2021 may find it makes sense to defer their bonus depreciation to 2022 and beyond, for instance, in case the tax hike becomes law.
Our team will be paying close attention to the new administration’s tax policies in the months to come to keep you informed about how they will affect your business. If you aren’t aware of the “Insights” portion of our website, I encourage you to check it regularly. Our practice leaders will be offering frequent updates on new developments that are relevant to middle-market companies.
Although many companies will see a boom in 2021, others are going to have to keep reinventing themselves as they navigate their way through what remains of the pandemic. The mall industry for one – already struggling before COVID-19 – has been battered severely, with vacancies reaching a record high in Q1. Fortunately, there are some interesting initiatives emerging from Washington. Our team has been keeping an eye on proposed legislation that would allow REITs to take a bigger investment stake in mall retailers than they currently are allowed, which could help some retailers make it through the current headwinds they face and make the most of pent-up demand from shoppers who are getting online-shopping fatigue.
We live in interesting times; they will certainly get more interesting in the coming months.
Stay safe, stay healthy and remember, we’re all in this together.