At least 70 of America’s largest companies would pay more in taxes under a new minimum tax that Democrats are proposing as a way to pay for the spending bill moving through Congress, according to an analysis being released by Senator Elizabeth Warren, Democrat of Massachusetts, on Thursday.
The report gives a first glimpse at companies that could be subject to higher tax bills under the proposal. It proposes enacting a 15% minimum tax on profits of more than $1,000,000 to shareholders. Even if they are not subject to federal tax liability, it will impose a 15% tax on profits over $1 billion. This plan is included in the $1.85 trillion climate and social policy bill that President Biden is trying push through Congress.
The new tax would apply only to book income, which companies report to shareholders, but not to I.R.S. Profitable companies often have the ability to reduce or eliminate tax liability by using tax credits and deductions as well as carrying over losses.
The book tax is designed to raise money from companies while reducing the corporate tax rate of 21 percent. Although Mr. Biden initially promised to raise the corporate rate to 28 percent in his original proposal, moderate Democrats have rejected that proposal.
Ms. Warren’s study found that the tax would force companies such as Amazon and FedEx to pay more money to the United States government. The Joint Committee on Taxation has recently concluded that the proposal would generate $319 Billion over 10 years.
“Giant corporations have figured out how to game the system so that the costs of running this country are borne by hardworking families while these big corporations scoop up all of the profits and pay little or nothing in taxes,” Ms. Warren said in an interview. “It’s time to put a stop to that.”
Ms. Warren’s office used data compiled by the nonpartisan Institute on Taxation and Economic Policy on publicly traded companies in the Fortune 500 and S&P 500. The analysis considered “taxes paid” as a company’s current income tax expense, or how much they paid in U.S. federal taxes and foreign taxes in 2020.
According to Ms. Warren’s analysis, Amazon was able to reduce its tax rate to 11.5 percent rather than 21 percent in 2020. The tech company would have paid $836 million more in federal and foreign income taxes had the minimum tax been in place, according to Ms. Warren’s analysis. Amazon declined comment.
The FedEx report found that FedEx had an effective tax rate of 7.2 percent and would have paid $518 millions more in taxes in 2020 if the new tax had been in place. FedEx said that the analysis was “premature” and that it paid all of the taxes it owed.
“Until there are clear details on the calculation of this proposed corporate minimum tax, it is premature to assume or estimate how the tax would apply to specific companies,” Chris Allen, a spokesman for FedEx, said in a statement.
Opponents of the tax have expressed concern that it would give the Financial Accounting Standards Board, an independent entity that sets accounting rules, more control over the U.S. tax system.
“The potential politicization of the F.A.S.B. will likely lead to lower-quality financial accounting standards and lower-quality financial accounting earnings,” according to a letter to members of Congress from more than 260 accounting academics.
The group also warned that companies would likely report lower profits to shareholders under the new proposal to lower their tax bills. They suggested that the idea to use book income as an alternative tax source is too complex.
“It would be cleaner and simpler to just fix the tax code if there are perceived problems with the tax system,” they wrote.
Source: NY Times