President Joe Biden’s infrastructure plan, announced March 31, would stop companies from avoiding taxes on their domestic profits and their offshore profits and work with foreign governments to institute a global minimum tax. The President’s call to increase the statutory rate from 21% to 28% for domestic corporate profits will receive most of the attention. But his plan for ending offshore tax avoidance is equally important.  

The stakes are high because the biggest and most profitable companies have been shifting their U.S. income into foreign tax havens for decades. By 2016, multinational corporations had stashed $2.6 trillion offshore, avoiding an estimated $750 billion in U.S. taxes. While former President Trump and Congress claimed to have a strategy for ending income-shifting in their 2017 tax overhaul, it didn’t work out that way.

Under the Trump law, the U.S. tax regime for offshore profits of American corporations is remarkably lax. Offshore profits up to a 10% of return on investments made abroad are exempt from U.S. tax. Profits above this amount are effectively subject to a 10.5% tax, half of the 21% rate on domestic profits. Worse, because corporations can pool their foreign profits, losses, and taxes from all countries, they often avoid paying anything on profits in offshore tax havens.

The tax system rewards corporations for using accounting gimmicks to make their profits appear to be earned in offshore tax havens, as has been the case for years. But the 2017 tax law made this worse because it also rewards companies that move real investments and operations offshore. Since a 10% return on tangible assets is exempt from U.S. taxes, shifting more tangible assets abroad means companies can exempt more foreign income from U.S. tax. 

Biden’s international tax reforms would stop this. The proposal ends the 10% exemption, and it would hike the residual U.S. tax on foreign profits to 21%. While this would be lower than the 28% rate Biden proposes for domestic profits, it would be high enough to remove most of the incentive to shift income into tax havens such as the Cayman Islands. If a company pays less than 21% in taxes to a foreign government for profits earned in another country, it would be required to pay the remainder to the U.S. so that their total tax is 21% regardless of where the company claims to earn those profits.  

Importantly, Biden also emphasizes working cooperatively with other nations to create a strong, leak-proof international tax system. As Treasury Secretary Janet Yellen put it earlier this week, this embrace of a multilateral, cooperative approach to ending tax avoidance could spell the end of the “race to the bottom” in international corporate taxation.  

There’s a lot to be happy about in Biden’s domestic tax reform plan as well: By increasing the corporate tax rate from 21% to 28%, he would undo half of the 2017 reduction in the corporate tax rate. While Biden’s plan would not directly repeal many tax breaks (other than eliminating all fossil fuel–related tax subsidies), he would introduce a backstop tax, based on a much broader definition of income, to prevent profitable companies from avoiding all income taxes. 

This would have the effect of reducing the overall cost of existing tax breaks. The proposed 15% minimum tax on “book income,” the amount of pretax income companies report to their shareholders (which is often much larger than the taxable income these companies report to the Internal Revenue Service), would represent an important first step toward ending the proliferation of profitable zero-tax corporations.  

Equally important is the administration’s goal of undoing a decade of budget cuts to the IRS so that it can enforce the tax laws that big, profitable companies easily skirt right now. The ease with which the biggest corporations are able to get around the law is a potent signal to the many Americans who distrust our government that the rules are written for the benefit of the best-off. 

The President’s tax plan is a watershed in the decades-long battle over corporate tax reform. It would help restore the public’s trust that the nation’s tax system and institutions generally work for everyone, not just those with enormous teams of lawyers and accountants creating opaque shell corporations in tiny island nations. 

Matt Gardner is a senior fellow at the Institute on Taxation and Economic Policy.