Joe Biden promised to use tax code changes to penalize "offshoring," which is when U.S. companies set up overseas facilities to avoid paying U.S. taxes. But no such changes were ever enacted.

After taking office, Biden proposed several tax revisions that could have affected offshoring. 

One would have changed the taxation of global intangible low-taxed income, or GILTI — the income earned by foreign affiliates of U.S. companies that exceeds a 10% return on their tangible assets. Under current laws, multinational corporations can classify income in certain ways to minimize this tax.

The initial version of Biden's Build Back Better legislation, which passed the House in November 2021, would have changed how GILTI operated, increasing the effective tax rate for companies. 

But when the legislation reached the Senate, Democrats decided to reduce the bill's scope. The bill that passed both chambers, which became known as the 2022 Inflation Reduction Act, included other corporate taxation provisions, but none that directly targeted offshoring. 

Experts say there is no chance of passing legislation to accomplish this in Biden's remaining time in office, so we rate this Promise Broken.

As a presidential candidate, Joe Biden promised to change the tax code to penalize "offshoring," or having U.S. companies set up facilities overseas to avoid paying taxes.

After taking office, Biden proposed several tax changes that could affect offshoring. 

One would have changed the taxation of global intangible low-taxed income, or GILTI — the income earned by foreign affiliates of U.S. companies that exceeds a 10% return on their tangible assets. Currently, a multinational corporation might be able to avoid this taxation by "blending" income earned in low tax-rate countries with income earned in high-tax rate countries, effectively sidestepping much of the tax bite.

The initial version of Biden's Build Back Better legislation, which has passed the House, would have changed how GILTI operated, increasing the effective tax rate for companies. 

In the Senate, Democrats decided that they couldn't vote for a measure that broad. The bill that managed to pass the Senate — and which is expected to pass the House and be signed by the president — included other provisions on corporate taxation, but not ones that directly targeted offshoring. 

"The offshoring penalty is not in" the bill approved by the Senate, said Garrett Watson, senior policy analyst with the Tax Foundation. "Some have tried to argue that the minimum book tax may impact foreign income. While that could be true, it's not the main aim of that tax, and it would not necessarily impact decisions about foreign investment in the same way as the penalty proposed by the president previously."

Since this is the last major legislation considered to have a chance of passing before the midterm elections, we rate this promise Stalled.

As a presidential candidate, Joe Biden promised to change the tax code in ways that would penalize "offshoring," or having U.S. companies set up facilities overseas in a way that avoids paying taxes.

Several of Biden's tax proposals on overseas corporate operations have advanced, said Thornton Matheson, a senior fellow at the Urban Institute-Brookings Institution Tax Policy Center.

After taking office, Biden proposed several tax changes that could affect the offshoring, said Thornton Matheson, a senior fellow at the Urban Institute-Brookings Institution Tax Policy Center.

(Warning: We're about to explain the complicated details of international tax policy.)

One change would affect the global intangible low-taxed income, or GILTI. This refers to the income earned by foreign affiliates of U.S. companies that exceeds a 10% return on their tangible assets. Currently, a U.S. corporation must include half of the GILTI income earned by its foreign affiliates in the gross income that is subject to the U.S. corporate income tax. However, it can claim a tax credit for 80% of the foreign tax paid on GILTI.

Notably, under the current rules, a multinational corporation might be able to avoid GILTI taxation by "blending" income earned in low tax-rate countries with income earned in high-tax rate countries, effectively sidestepping much of the tax bite.

Biden's Build Back Better legislation, which has passed the House and is now being considered by the Senate, would change how GILTI operates. It would effectively bar that cross-country "blending" strategy and would increase the effective tax rate on GILTI from 10.5% to 15%.

The second provision that could affect offshoring decisions involves foreign-derived intangible income, or FDII. This refers to U.S. income from the sale of goods and services abroad that exceeds a 10% return on domestic tangible assets. 

Currently, U.S. corporations can take a 37.5% deduction from the 21% corporate tax for foreign-derived intangible income, resulting in an effective 13.125% tax rate.

The impact could be mixed, Matheson said. "GILTI reform makes it less advantageous to invest offshore, but it increases the pressure for 'inversion,'" she said. Inversion refers to U.S. corporations being acquired by a foreign entity, with shareholders continuing to own the corporation indirectly through their ownership of the foreign acquirer's shares.

Biden's proposals face a challenging road in the Senate, but they are still alive. We rate this promise In the Works.

Before a campaign appearance in the industrial battleground state of Michigan, Joe Biden unveiled a tax plan that included disincentives to "offshoring," the practice of companies setting up operations overseas, rather than maintaining jobs in the United States, because the company expects cheaper costs or lower tax rates.

Two key elements of Biden's plan were the establishment of a 28% corporate tax rate and a 10% "offshoring penalty surtax."

As president, Biden has taken steps to advance this goal, though it remains to be seen   whether each provision will become law.

In his American Jobs Plan, an infrastructure-heavy proposal, Biden proposed raising the federal tax rate on corporations from 21% to 28%. That increase would leave the rate lower than 35%, the level it was before President Donald Trump signed a tax law that lowered the rate in 2017. 

The American Jobs Plan also includes tax provisions that focus specifically on offshoring. 

The proposal would eliminate the rule that allows U.S. companies to pay zero taxes on the first 10% of returns when they locate investments in foreign countries.

It would also provide a tax credit to "support onshoring jobs," though the proposal does not outline specifics.

The White House has been negotiating with senators for weeks to see if Democrats and Republicans can come together. Key leaders in both parties have expressed a willingness to come together on a bipartisan bill, but no deal has been struck.

If a bipartisan compromise emerges, there's no guarantee that Biden's offshoring tax proposals will make the final version.

In fact, a 28% corporate tax rate has already prompted opposition, with Republicans arguing that it would leave the United States at a competitive disadvantage. And at least one Democrat, Sen. Joe Manchin of West Virginia, has already said he opposes any increase beyond 25%.

It's unclear whether Biden's offshoring proposals will make a final bill. But they are part of his opening volley, which is enough to rate this promise In the Works.