Corporate Tax

Proposal for a corporate minimal tax offered by key Senate Democrats

WASHINGTON – New details of a Democratic plan to pass a minimum corporate tax of 15% on declared income of large corporations were announced Tuesday by three Senators, Elizabeth Warren, D-Mass., Angus King, I-Maine, and the Chairman of the Senate Finance Committee, Ron., Published Wyden, D-Ore.

The Senators will propose including the tax as a source of income to fund the massive “Build Back Better” bill that the Democrats are currently negotiating.

(LR) Sen. Elizabeth Warren (D-MA), Sen. Ron Wyden (D-OR) and Sen. Angus King (I-ME) speak to reporters about a corporate minimum tax plan at the U.S. Capitol October 26, 2021 in Washington, DC

Drew Angerer | Getty Images

Shortly after the plan was released, a key senator in those negotiations, Arizona Democrat Kyrsten Sinema, announced that she would support the corporate minimum tax, which gave the proposal a significant boost.

According to a statement from the senators, the minimum corporate tax would:

  • Applies only to companies that publicly report earnings of more than $ 1 billion annually for a period of three years.
  • Create a flat minimum tax of 15% on these profits.
  • Maintain “the value of corporate credits – including R&D, clean energy, and housing tax credits – and give corporations some flexibility to carry forward losses, take advantage of foreign tax credits, and claim a minimum regular tax credit in years to come”.

The tax proposal received renewed attention this week after Sinema announced that it would not support the hike in the current corporate tax rate, which was originally the Democrats’ drive to increase revenue for their social spending plan.

The tax would likely apply to about 200 American companies, the senators said.

The Democrats did not say which corporate loans would be preserved within the tax code. The details of these credits would likely make a huge difference to the businesses facing the tax liability.

Under the laws published by Warren’s office, the Treasury Department would be tasked with determining which companies are subject to tax and which details are subject to tax collection.

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“The most profitable companies in the country are often the worst culprits when it comes to paying their fair share. Year after year they report record profits to shareholders and pay little to no tax – the largest companies pay a minimum tax, “Wyden said in a statement.

They referred specifically to Amazon, which had $ 45 billion in profits over the past three years but paid an “effective tax rate of only 4.3% – well below the corporate tax rate of 21%”.

The proposal has yet to be formally approved by House and Senate leaders. But Warren said she and her colleagues “partnered extensively” with the Senate Finance Committee, White House, and Treasury Department to develop this updated proposal for inclusion in the Build Back Better bill.

The current proposal is similar to that presented by President Joe Biden earlier this year as part of the White House’s broader “Made In America” tax agenda.

In March, the government demanded a minimum tax of 15% on income taxes that corporations use to report their profits to investors, known as “book income”.

The White House said at the time that such a provision would “only apply to the very largest corporations” and ensure that large corporations cannot “take advantage of loops in tax law to avoid paying US corporate taxes.”

The Biden proposal differed in some respects from the current Senate proposal. One is that the Biden plan sets the income threshold at $ 2 billion, not $ 1 billion. The Senate proposal would therefore apply to more companies.

Biden’s plan also didn’t include a three-year rule that the tax only applies to companies that earn $ 1 billion or more for three consecutive years.

To read the legal language, click here.

Clarification: This story has been updated to better reflect the role of the Treasury Department in implementing the prospective tax.

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