Politics Minimum tax proposal drives wedge between corporate interests

13:51  07 december  2021
13:51  07 december  2021 Source:   thehill.com

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A tax wedge is the difference between before- tax and after- tax wages. The tax wedge measures how much the government ostensibly receives as a result of taxing the labor force. Tax wedge may also refer to the market inefficiency that is created when a tax is imposed on a good or service.

“Our corporate minimum tax is a backstop to ensure that the most profitable megacorporations are not paying no taxes at all while reporting record profits to their shareholders.” Book income is the income companies disclose to shareholders, while taxable income is the amount on which companies are taxed after making any allowable revenue deductions. Created with Highcharts 9.0.1. Tax Fallout The impact of a proposed corporate minimum tax would vary by industry for the biggest U.S. companies.

Minimum tax proposal drives wedge between corporate interests © Getty Images Minimum tax proposal drives wedge between corporate interests

Corporate lobbyists are aggressively pressing Senate Democrats to scrap a minimum tax on corporations' income included in the House-passed $2 trillion climate and social spending package.

The proposal, which would require around 200 of the nation's largest companies to pay a minimum 15 percent federal income tax, has swiftly become a top priority on K Street. But unlike with other tax hike proposals, corporate America isn't united in opposition to the minimum tax.

Manufacturers, electric utilities, drugmakers, wireless companies and other industries that use lucrative deductions to avoid paying substantial federal income taxes are pushing back on the proposal, saying it would severely burden their ability to invest in the U.S.

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Democrats’ minimum tax proposal could hit these ultra-profitable corporations . Effective federal income tax rates. of most-profitable companies since 2018. Ireland’s 12.5 percent corporate tax rate has long attracted large U.S. firms, but a new global minimum tax aims to halt such tax avoidance. Under the House bill, companies would be charged a separate 15 percent minimum tax per country on foreign earnings.

Creates a minimum tax on corporations with book profits of 0 million or higher. The minimum tax is structured as an alternative minimum tax — corporations will pay the greater of their regular corporate income tax or the 15 percent minimum tax while still allowing for net operating loss (NOL) and foreign tax The result of this capital flow is a wedge between GDP (economic output) and GNP (American incomes). Biden’s tax plan would produce this wedge by raising taxes on domestic savers, resulting in lower American incomes and greater foreign ownership of domestic assets.

But some large retailers, which don't benefit from the same tax write-offs, are lobbying for the minimum tax, arguing that it fulfills President Biden's campaign pledge of making all highly profitable companies pay their fair share, like retailers say they already are.

"For a group of members like ours who are truly paying their full freight in taxes, the idea that others should be paying their taxes shouldn't feel so radical," said Hana Greenberg, vice president of tax at the Retail Industry Leaders Association, which represents large retail companies such as Target, Walgreens and Best Buy.

Retailers previously joined other corporate interests in strongly opposing a corporate tax rate increase included in Democrats' initial reconciliation package, which they argued would have exacerbated tax discrepancies between industries.

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2. Alternative minimum tax (AMT). AMT previously was imposed on corporations other than S corporations and small C corporations (generally those with three-year average annual gross receipts not exceeding .5 million). The Act repealed the corporate AMT effective for tax years beginning after December 31, 2017, and provided a mechanism for prior-year corporate AMT credits to be refunded by the end of 2021. Tax readiness insight: Under the Act, companies with AMT credit carryforwards may claim a refund of 50% of the remaining credits (to the extent the credits exceed

Taxation. An aspect of fiscal policy. Business portal. Money portal. v. t. e. The global minimum corporate tax rate, abbreviated GMCT or GMCTR, is an agreement between national leaders which proposes to reduce tax competition between countries and the avoidance of corporate taxes by

"If policymakers are concerned about some companies that utilize so many tax preferences that they are able to greatly lower their effective tax rates, the best way to address that is to either eliminate those tax preferences or institute a minimum tax," said Rachelle Bernstein, vice president and tax counsel at the National Retail Federation, another leading retail group.

The minimum tax will only apply to companies with more than $1 billion in annual "book" income, or the amount of income corporations publicly report on their financial statements to shareholders. At least 70 public companies hit that threshold but paid less than 15 percent in federal taxes last year, including Amazon, Bank of America, Netflix, Regeneron Pharmaceuticals and T-Mobile, according to a report from Sen. Elizabeth Warren (D-Mass.).

Affected industries argue that the minimum tax would discourage them from making domestic investments in research and development as well as capital assets such as machinery and equipment. They say that not all tax provisions are included in financial statements, creating confusion over what kind of income can be deducted.

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Distinguish between legal and economic tax incidence. Know how to represent taxes by shifting the curve and the wedge method. Understand the quantity and price affect from a tax . Describe why both taxes and subsidies cause deadweight loss. Taxes are not the most popular policy, but they are often necessary. Another method to view taxes is through the wedge method. This method recognizes that who pays the tax is ultimately irrelevant. Instead, the wedge method illustrates that a tax drives a wedge between the price consumers pay and the revenue producers receive, equal to the size of the

Corporations around the world should pay at least a 15% tax on their earnings, the Treasury Department said Thursday as part of its push for a global minimum for businesses. The final rate could go even higher than that, according to a Treasury release that said the 15% minimum is a "floor and that discussions should continue to be ambitious and push that rate higher." Under a proposal from President Joe Biden, the tax rate would be lifted to 28%, part of a plan to raise levies on both companies and the highest earners. But the White House wants to take its tax plans outside the border.

"When Americans are counting on manufacturers to lead our recovery and respond to supply chain challenges, a tax specifically targeting our industry makes absolutely no sense and jeopardizes Americans' economic future," Christopher Netram, vice president of tax and domestic policy at the National Association of Manufacturers, told The Hill Monday.

The manufacturing association was one of several business groups who wrote a letter to congressional leaders last week saying that "Businesses rely on stability, and a book tax will create uncertainty as the regime interacts with other portions of the tax code, such as accelerated depreciation, incentives for research and development, foreign tax credits, pensions and net operating losses."

Democrats added the minimum tax proposal to their reconciliation package in October to replace a corporate tax rate hike opposed by Sen. Kyrsten Sinema (D-Ariz.). Lobbyists said that since then business interests have made inroads with Senate Democrats on the issue.

"You see these effects across the economy from a provision that's never been in our law before, and there's a lot of concern amongst industry and in the Senate Democratic caucus," said Al Mottur, a Democratic lobbyist at Brownstein Hyatt Farber Schreck LLP.

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"The more people learn about this proposal, the more concerned they get," he added.

Lobbyists and business groups from certain industries are pushing for incremental changes to the proposal.

Some are warning Democrats that the minimum tax would count investment income on pension plans, potentially forcing pension fund operators to sell assets in order to pay down a large tax bill if their company surpasses the income threshold. They're pushing lawmakers to exempt pension plans from the minimum tax.

Energy groups such as the American Council on Renewable Energy, Edison Electric Institute and American Clean Power Association are lobbying Democrats to exempt renewable energy firms or risk undermining the climate benefits of their own green energy tax credits.

Warren's report found that American Electric Power and Xcel Energy, two of the nation's largest utilities, received more money in refunds from the federal government than they paid in taxes, giving them an effective negative federal tax rate.

"We believe renewable energy is fully protected under the language," Senate Finance Committee Chairman Ron Wyden (D-Ore.) told reporters last week. "We'll continue to have those discussions and see what else can be learned."

But big business groups are pushing lawmakers to remove the minimum tax entirely, arguing that it cannot be salvaged with minor tweaks.

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Joshua Bolten, CEO of the Business Roundtable, which represents executives at large corporations such as FedEx and General Motors, told reporters last week that the minimum tax "would undermine incentives adopted on a bipartisan basis to increase investment in the U.S."

Around a half-dozen Senate Democrats have privately expressed anxiety about how the minimum tax proposal affects pension funds or dominant industries in their home states, but it's unclear whether any of them would actually oppose the measure, lobbyists said.

Rejecting the minimum tax could be a hard sell, given Biden's goal of ensuring large companies pay federal taxes, and that almost all opposition to the proposal comes from the nation's most profitable companies. Divisions within corporate America over the measure could further complicate that equation.

The minimum tax already has the support of Sinema and Sen. Joe Manchin (D-W.Va.), whom business interests have repeatedly leaned on to tweak or defeat other Democratic proposals that would hurt their profits. Democrats intend to pass the measure through reconciliation, meaning they don't need Republican support but do need every Democrat on board.

Still, Manchin's insistence on a smaller reconciliation package could eliminate the need for a minimum tax, which would raise around $320 billion. Manchin has said he doesn't want the $180 billion paid leave program to be in the reconciliation package and has been noncommittal about extending the expanded child tax credit, which would cost around $185 billion.

Manchin has also insisted that he wants to delay the reconciliation package until next year. That would give business interests more time to convince lawmakers to modify the minimum tax or outright block it, lobbyists said.

Senate Majority Leader Charles Schumer (D-N.Y.) said Monday that he aims to vote on the reconciliation package by Christmas, but both K Street and Senate Democrats think that timeline is unrealistic.

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usr: 1
This is interesting!