The corporate minimum tax proposal, released Tuesday night by Treasury Chair Senator Ron Wyden, and Sens. Elizabeth Warren and Angus King, would represent a huge improvement in federal tax law. There are still important questions about whether the corporate tax reform package in the Build Back Better bill will generate enough revenue, but this proposal makes us optimistic.
The proposal would ensure that the roughly 200 largest companies pay federal income taxes equal to at least 15 percent of the profits they show to shareholders. These companies are technically subject to the statutory corporate tax rate of 21 percent, but often pay nothing under the applicable tax regulations, as the Institute for Taxes and Economic Policy has repeatedly established.
In 2020, as the world suffered from the pandemic and the resulting economic recession, 55 large companies reported profits to their shareholders but did not pay federal income taxes.
This problem is not year specific. We found that 39 companies reported profits each year from 2018 to 2020, but did not pay federal income taxes during that period, the first three years that the Tax Cuts and Jobs Act was in effect.
But the problem didn’t start with the Trump GOP tax bill. In previous work, we found that 18 companies reported profits each year for eight years, 2008 through 2015, but did not pay federal income taxes during that period.
The tax-free companies provide the most sensational examples of how broken the country’s tax system really is, but many more companies effectively only pay a small percentage of their income in taxes. That includes notable tax avoidance Amazon, which posted more than $ 43.4 billion in profits from 2018 to 2020 and paid federal income taxes of 4.3 percent of those profits over that three-year period. Another ITEP analysis also found that more than 70 other companies paid less than half the statutory rate of 21 percent in the 2018-2020 period.
Tax avoidance shouldn’t be swept under the rug. Not only is it depriving the federal government of the revenue it needs, but it also begs the question of how companies should help fund the programs and services that make our developed economy possible. Without the highways, ports, and airports that allow goods to move across the country, Amazon wouldn’t be making a profit, let alone the education system that provides a productive workforce or the legal system that enforces the millions of contracts that make trade possible. Amazon and other corporations would be worthless without tax-financed investments.
The Senate’s proposal is not perfect. It would not affect many of the tax-exempt companies identified by ITEP as it would only apply to companies whose profits exceed $ 1 billion annually. (The bill uses the average profits of each company over the past three years.) There is no reason why companies that show shareholders profits of hundreds of millions, but not billions of dollars, should avoid paying taxes. That said, the corporate minimum tax is a big step forward and a valuable part of the Build Back Better plan.
However, there are still many questions to be answered about how the Build Back Better plan will generate more revenue overall and resolve tax code issues. The plan began with President Biden’s proposals, which would have raised $ 2 trillion over a decade by raising the statutory corporate tax rate and limiting breaks and loopholes in corporate tax regulations. Then the House Ways and Means Committee approved a bill that would have produced just $ 1 trillion in a decade by raising the statutory corporate tax rate and limiting breaks and loopholes. Now Senator Wyden and his colleagues have approved the new proposal for a minimum corporate tax that they believe would raise between $ 300 billion and $ 400 billion in a decade.
With all Republicans and apparently one Senate Democrat opposed to raising the statutory corporate tax rate, it may be off the table, despite taking a significant portion of the revenue from the original version of the White House plan and the Ways. mattered and middle version.
It is not immediately clear how the corporate minimum tax would interact with other reforms. For example, the final package is expected to include several provisions to close off interruptions for the shifting of profits overseas, which the United States will bring in accordance with an international agreement that the Biden government helped brokers with offshore Stop tax evasion. It’s not clear whether the corporate minimum tax is expected to add $ 300 billion to $ 400 billion on top of the revenue generated by these reforms.
Of course, the final bill is likely to include revenue-enhancing provisions that go beyond corporate tax provisions and exclude tax breaks in income tax. But it is also important that the nation collect enough revenue from the corporations to fund investments that make their profits possible.
There are many ways to achieve this. In theory, it doesn’t matter whether Congress raises the statutory tax rate as long as it increases the effective tax rate that corporations pay, the tax rate they pay as a percentage of their profits. Legislators could completely increase the effective tax rates of corporations by limiting special regimes and loopholes, which would be exactly what the corporate minimum tax proposal would do. However, the corporate minimum tax alone may not be enough. We need to see the whole package to understand whether it fulfills the revolutionary promise of President Biden’s original proposals.