Connect with us

News

Democrats Eye a Major Shift in How Corporations Are Taxed

Published

on

WASHINGTON — At the center of the new climate and tax package that Democrats appear to be on the verge of passing is one of the most significant changes to America’s tax code in decades: a new corporate minimum tax that could reshape how the federal government collects revenue and alter how the nation’s most profitable companies invest in their businesses.

The proposal is one of the last remaining tax increases in the package that Democrats are aiming to pass along party lines in coming days. After months of intraparty disagreement over whether to raise taxes on the wealthy or roll back some of the 2017 Republican tax cuts to fund their agenda, they have settled on a longstanding political ambition to ensure that large and profitable companies pay more than $0 in federal taxes.

To accomplish this, Democrats have recreated a policy that was last employed in the 1980s: trying to capture tax revenue from companies that report a profit to shareholders on their financial statements while bulking up on deductions to whittle down their tax bills.

The re-emergence of the corporate minimum tax, which would apply to what’s known as the “book income” that companies report on their financial statements, has prompted confusion and fierce lobbying resistance since it was announced last month.

Some initially conflated the measure with the 15 percent global minimum tax that Treasury Secretary Janet L. Yellen has been pushing as part of an international tax deal. However, that is a separate proposal, which in the United States remains stalled in Congress, that would apply to the foreign earnings of American multinational companies.

Republicans have also misleadingly tried to seize on the tax increase as evidence that President Biden was ready to break his campaign promises and raise taxes on middle-class workers. And manufacturers have warned that it would impose new costs at a time of rapid inflation.

In a sign of the political power of lobbyists in Washington, by Thursday evening the new tax had already been watered down. At the urging of manufacturers, Senator Kyrsten Sinema of Arizona persuaded her Democratic colleagues to preserve a valuable deduction, known as bonus depreciation, that is associated with purchases of machinery and equipment.

The new 15 percent minimum tax would apply to corporations that report annual income of more than $1 billion to shareholders on their financial statements but use deductions, credits and other preferential tax treatments to reduce their effective tax rates well below the statutory 21 percent. It was originally projected to raise $313 billion in tax revenue over a decade, though the final tally is likely to be $258 billion once the revised bill is finalized.

The new tax could also inject a greater degree of complexity into the tax code, creating challenges in carrying out the law if it is passed.

Advertisement

“In terms of implementation and just bandwidth to deal with the complexity, there’s no doubt that this regime is complex,” said Peter Richman, a senior attorney adviser at the Tax Law Center at New York University’s law school. “This is a big change and the revenue number is large.”

Because of that complexity, the corporate minimum tax has faced substantial skepticism. It is less efficient than simply eliminating deductions or raising the corporate tax rate and could open the door for companies to find new ways to make their income appear lower to reduce their tax bills.

Similar versions of the idea have been floated by Mr. Biden during his presidential campaign and by Senator Elizabeth Warren, Democrat of Massachusetts. They have been promoted as a way to restore fairness to a tax system that has allowed major corporations to dramatically lower their tax bills through deductions and other accounting measures.

Advertisement

According to an early estimate from the nonpartisan Joint Committee on Taxation, the tax would most likely apply to about 150 companies annually, and the bulk of them would be manufacturers. That spurred an outcry from manufacturing companies and Republicans, who have been opposed to any policies that scale back the tax cuts that they enacted five years ago.

Although many Democrats acknowledge that the corporate minimum tax was not their first choice of tax hikes, they have embraced it as a political winner. Senator Ron Wyden of Oregon, the chairman of the Senate Finance Committee, shared Joint Committee on Taxation data on Thursday indicating that in 2019, about 100 to 125 corporations reported financial statement income greater than $1 billion, yet their effective tax rates were lower than 5 percent. The average income reported on financial statements to shareholders was nearly $9 billion, but they paid an average effective tax rate of just 1.1 percent.

“Companies are paying rock-bottom rates while reporting record profits to their shareholders,” Mr. Wyden said.

The Treasury Department had reservations about the minimum tax idea last year because of its complexity. If enacted, Treasury would be responsible for crafting a raft of new regulations and guidance for the new law and for ensuring that the Internal Revenue Service could properly police it.

Michael J. Graetz, a tax law professor at Columbia University, acknowledged that calculating minimum taxes was complicated and that introducing a new tax base would add new challenges from a tax administration perspective, but he said that he did not view those obstacles as disqualifying. He noted that the current system had created opportunities for tax shelters and allowed companies to take losses for tax purposes that do not show up on their financial statements.

“If the problem that Congress is addressing is that companies are reporting high book profits and low taxes, then the only way to align those two is to base taxes on book profits to some extent,” Mr. Graetz, a former deputy assistant secretary for tax policy at the Treasury Department, said.

A similar version of the tax was included in a 1986 tax overhaul and allowed to expire after three years. Skeptics of revisiting such a measure have warned that it could create new problems and opportunities for companies to avoid the minimum tax.

“The evidence from the studies of outcomes around the Tax Reform Act of 1986 suggest that companies responded to such a policy by altering how they report financial accounting income — companies deferred more income into future years,” Michelle Hanlon, an accounting professor at the Sloan School of Management at the Massachusetts Institute of Technology, told the Senate Finance Committee last year. “This behavioral response poses serious risks for financial accounting and the capital markets.”

Other opponents of the new tax have expressed concerns that it would give more control over the U.S. tax base to the Financial Accounting Standards Board, an independent organization that sets accounting rules.

“The potential politicization of the F.A.S.B. will likely lead to lower-quality financial accounting standards and lower-quality financial accounting earnings,” Ms. Hanlon and Jeffrey L. Hoopes, a University of North Carolina professor, wrote in a letter to members of Congress last year that was signed by more than 260 accounting academics.

Advertisement

Business groups have pushed back hard against the proposal and pressured Ms. Sinema to block the tax entirely. The National Association of Manufacturers and Arizona Chamber of Commerce and Industry released on Wednesday a poll of manufacturing workers, managers and advocates in the state that showed a majority opposed the new tax.

“It will make it harder to hire more workers, raise wages and invest in our communities,” said Chad Moutray, the chief economist of the manufacturing association. “Arizona’s manufacturing voters are clearly saying that this tax will hurt our economy.”

Ms. Sinema has expressed opposition to increasing tax rates and had reservations about a proposal to scale back the special tax treatment that hedge fund managers and private equity executives receive for “carried interest.” Democrats scrapped the proposal at her urging.

When an earlier version of a corporate minimum tax was proposed last October, Ms. Sinema issued an approving statement.

“This proposal represents a common sense step toward ensuring that highly profitable corporations — which sometimes can avoid the current corporate tax rate — pay a reasonable minimum corporate tax on their profits, just as everyday Arizonans and Arizona small businesses do,” she said. In announcing that she would back an amended version of the climate and tax bill on Thursday, Ms. Sinema noted that it would “protect advanced manufacturing.”

That won plaudits from business groups on Friday.

“Taxing capital expenditures — investments in new buildings, factories, equipment, etc. — is one of the most economically destructive ways you can raise taxes,” Neil Bradley, chief policy officer of the U.S. Chamber of Commerce, said in a statement. He added, “While we look forward to reviewing the new proposed bill, Senator Sinema deserves credit for recognizing this and fighting for changes.”

Emily Cochrane contributed reporting.

Read the full article here

Advertisement

A journalist since 1994, he also founded DMGlobal Marketing & Public Relations. Glover has an extensive list of clients including corporations, non-profits, government agencies, politics, business owners, PR firms, and attorneys.

News

Tune in to BlackUSA.News 7 Days a Week: NYC, Baltimore, DC, ATL, LA, OAKLAND

Published

on

(BALTIMORE – March 14, 2023) – Do check our shows on BlackUSA.News. We stream LIVE to Facebook, YouTube, & Twitter daily. Our hosts hail from New York, Baltimore and Prince George’s County, MD, Washington, D.C., Atlanta, Oakland, and Los Angeles.

We cover business, politics, lifestyle, community, entertainment, authors, actors, actresses, the metaverse and so much more! Check us out!

 

 

Continue Reading

News

Black Press Day, March 16th, 12-2p, Nancy by SNAC, BALTIMORE

Published

on

(BALTIMORE – March 14, 2023) – Founded on March 16, 1827, as a four-page, four-column standard-sized weekly, Freedom’s Journal was the first black-owned and operated newspaper in the United States, and was established the same year that slavery was abolished in New York State.

The newspaper was founded at 5 Varick Street in Lower Manhattan, New York, by Jamaican-born John Brown Russwurm, Bowdoin College’s first African American graduate and only the third Black person to graduate from an American college.

Cofounder Samuel Eli Cornish, born in Sussex County, Delaware, and a graduate of the Free African School in Philadelphia, Pennsylvania, also founded Shiloh Presbyterian Church, the first Black Presbyterian Church in Manhattan, in 1822.

Come out and join Black Press professionals as we commemorate the very beginning of the 196-year legacy.

RSVP to https://blackpressday.eventbrite.com

Continue Reading

News

STEM Summer Camp Scholarships (June 2023 to August 2023) sponsored by Alpha Phi Alpha Fraternity of Montgomery County, MD, and The KID Museum

Published

on

Image courtesy of Canva.com and Kubilay Tutar, http://www.kubilayhocam.com/, @kubilayhocamedu

“An investment in knowledge pays the best interest.”

– Benjamin Franklin, Founding Father

(WASHINGTON, D.C. – February 24, 2023) – Alpha Phi Alpha, Montgomery County chapter and KID Museum have agreed to partner in celebration of Black History Month in providing upwards of 50 scholarships to qualifying students (Grades 4-8) for STEM summer camps in Bethesda, Maryland, June 2023 – August 2023.

The McGee STEM Youth Scholarship program seeks to expand the STEM pipeline for African American youth, with a goal to provide a generous level of financial support to families that qualify and that are in need of assistance for attendance to the KID Museum summer camp.

Upon approval, families receive a $10 registration fee, instead of the usual $490 cost; participants receive a Brigadier General Charles McGee lapel pin and certificate upon completion of camp.

KID Museum provides an extraordinary experience in the Washington, D.C., Metro area, for youth and adults alike. It hails as the region’s pioneering experiential museum and educational makerspace, fostering the “Mind of a Maker” and empowering young people to be agents for change.

Alpha Phi Alpha promotes scholarship and academic excellence and its members are esteemed in such STEM fields as engineering, medicine, pharmacy, dentistry, scientists, technology professionals and educators.

Applicants can apply at www.charlesmcgeestem.org. Registration is first-come, first served. And the registration date began February 1, 2023. Here is a link to the press release: https://www.einnews.com/pr_news/614678309/alpha-phi-alpha-and-kid-museum-launch-partnership-during-black-history-month-to-provide-stem-summer-camp-scholarships

Advertisement
Continue Reading

Trending