Yahoo Finance’s Brian Sozzi and Alexis Christoforous discuss potential tax plans for the next four years with Kate Barton, EY Global Vice Chair of Tax.
BRIAN SOZZI: We're just four days away from the election. But for a lot of investors, there are still big questions about what the next four years can mean for taxes. Here to break it down is Kate Barton, Global Vice Chair of Tax at EY. Kate, good to see you this morning here. How worried are your clients about a potential change in the White House?
KATE BARTON: Well, our clients are modeling and planning for either outcome. So they're prepared, I think, is the big thing, watching avidly, and once they know the results, I think they'll get their act together and try to educate Washington on what we need.
ALEXIS CHRISTOFOROUS: What would a Biden tax plan do to corporations, Kate? You know, he wants to raise the capital gains tax, he wants to tax individuals-- households making more than $400,000 a year. What's that going to do to corporate America?
KATE BARTON: So there's really three things that most companies are looking at in terms of the Biden plan. One is the fact that taxes are going up, the corporate rate, from 21 to 28. That's what he would-- he's saying he would do. The second is the fact that he wants to have this minimum tax, which is a tax on book income, 15% tax on book income.
And that's got a lot of our companies and multinationals concerned. So that's the second. And then the third is, you maybe have heard about this, tax on offshore earnings, called the GILTI tax. He wants to raise that from roughly 13% to 21%. Those are the big three provisions on the corporate side that have companies concerned.
But, you know, they will focus on those, and a lot of this would happen if Congress also changes to the Democrat-- to the Democratic side. So he really needs this so-called blue wave probably to get all of these changes through.
BRIAN SOZZI: Are company executives telling you that if those taxes do go up, like you just outlined, they are poised to pull back on their capital investment plans?
KATE BARTON: You know, I think companies right now are in a wait and see. They want to see whether or not this actually happens and whether or not the White House and the Senate both become blue wave. And then it's a matter of making sure that there's education. Because there is a lot to these offshore earnings in terms of which government would be a net winner as you look at what incentives we would be telling countries around the world.
Because it's not just about the US, it's also how the globe responds to these taxes because the US has a complex system where we still have a foreign tax credit, which means that how the countries tax subsidiaries of the US multinational matters just as much as how the US tax system goes. And so there's a lot going on in Europe. As you can imagine, everybody right now is revenue constrained, so everybody's looking at their tax codes around the world to change them to revenue raise.
And so when you revenue raise is just as important as how you do your stimulation right now as you're trying to come out of this pandemic. So that tap dance is really important.
ALEXIS CHRISTOFOROUS: Kate, our country has taken on enormous amounts of debt because of all the money that federal city and state governments have had to dole out during this pandemic. Doesn't this mean that whomever becomes president will be forced to raise taxes in the next four years just to fill coffers?
KATE BARTON: Listen, I think revenue raising is going to be important in the US. But both candidates right now, Trump really wants to keep taxes down and he wants to spend, you know, a lot of-- if you believe in this modern monetary theory, the government can continue to print dollars and not necessarily-- you know, just continue to grow the deficit. I know a lot of people don't subscribe to that. But I think that's, you know, more his thinking, and, you know, taxes would stay down.
If Biden comes in, he wants to raise $4 trillion for the US federal government through raising taxes. So, you know, two different very different approaches. But spending, I think, is key to both of them.
BRIAN SOZZI: Kate, earlier this week, I talked to Walmart's CEO, Doug McMillon, at our conference. And he said it's important that taxes stay, quote, "competitive." What would be a good competitive corporate tax rate for Joe Biden to consider?
KATE BARTON: You know, somewhere around 25% at the max. I mean, certainly, the 21% rate right now is a really good rate as you look at countries around the world. But a lot of it is the devil in the detail. Remember, the headline rate is just one aspect of this puzzle. Really, what happens is you have to look at deductions, what's deductible or not, to get to this 21% rate.
There were a lot of deductions that were foregone. And so if the rate goes up as, as Kennedy-- Biden has said, he wants to raise it to 28, and then if you don't have deductions, that could cost companies a lot of money. So it's, you know, really that-- that detail that we have to look at and make sure that more deductions come back.
BRIAN SOZZI: All right, let's leave it there. Kate Barton, Global Vice Chair of Tax at EY. Good to see you-- good to see you today.
KATE BARTON: Thank you. Thanks, Brian.