Proposal to Increase the Corporate Tax Rate... Again!

In late March 2023, President Biden proposed a federal budget for fiscal year 2024 that will increase government spending in new infrastructure, education, healthcare, and climate change initiatives. To fund the investments, the Biden administration has proposed several tax reforms that will have important implications for corporations. Specifically, the proposed increase in the corporate income tax rate from 21% to 28% will have a significant impact on rate-regulated utilities. Like the plan that was initially proposed in 2021 as an increase from 21 to 26.5%, the most recent proposed rate creates challenges that will undoubtedly impact new infrastructure opportunities designed to benefit consumers.

Impact on Rate-Regulated Utilities:

Rate-regulated utilities are companies that provide essential services such as electricity, gas, and water to the public, and are subject to government regulation of their rates and charges. These companies are typically structured as regulated monopolies, meaning they are the sole provider of the service in each area and are subject to government oversight to ensure that their rates are fair and reasonable. Any increase in the corporate income tax rate is likely to result in higher costs for consumers because utilities will face higher tax expenses, which will then be passed on to consumers, resulting in higher rates.

Moreover, because rate-regulated utilities have high levels of capital expenditures and infrastructure investments they have significant tax liabilities. Under the proposed tax reform these companies will face higher tax bills, potentially reducing their ability to invest in new infrastructure and other projects that benefit consumers.

Another impact of the proposed increase in the corporate tax rate is that it will reduce the attractiveness of rate-regulated utilities as an investment opportunity. Because these companies are subject to government regulation and oversight their profit margins are typically lower than those of other corporations. An increase in the corporate income tax rate will further reduce their profitability, potentially making them less appealing to investors.

What Will Happen Next:

The proposed increase in the corporate income tax rate from 21% to 28% will have significant implications for rate-regulated utilities. These companies are already subject to government regulation and oversight, and any increase in tax expenses will likely be passed on to consumers through higher rates, decrease the appeal of investment opportunities, and significantly reduce the opportunities for new infrastructure and projects that benefit consumers. The Biden administration’s proposed tax reforms will undoubtedly continue to be a topic of discussion, and it will be interesting to see how they will ultimately impact corporations and the economy as a whole.

How Lucasys can help:

Staying up-to-date in the everchanging regulatory and legislative policies is crucial to the success of rate-regulated utility companies. Lucasys provides easily-interpreted insights on an intuitive platform, with forecasting tools to allow for adequate planning to successfully adapt in the ever-changing and complex landscape of rate-regulated utilities. If you would like to take next steps to better understand how Lucasys can help you please contact a specialist by emailing contact@lucasys.com or visit https://www.lucasys.com/deferred-tax-solutions for more information.