Democrats’ minimum corporate tax would hit these industries hardest
Democrats are proposing a minimum tax on the income wealthy corporations report to investors to help fund the latest climate change and health care spending package unveiled last week.
The Cut Inflation Act of 2022 – introduced by Senate Majority Leader Chuck Schumer, D.N.Y., and Sen. Joe Manchin, DW.Va. – impose a minimum of 15% on companies based on the profits they publicly declare in their financial statements to shareholders.
The levy would only apply to companies that reported more than $1 billion in revenue. Democrats said the tax would hit about 200 of the nation’s largest companies — with profits exceeding $1 billion — which pay less than the current 21% rate for businesses. Schumer and Manchin estimated that the tax would generate about $313 billion in new revenue over the next decade.
“Tax fairness is vital to our country’s economic future,” Manchin said in a statement. “It is wrong that some of America’s largest corporations pay nothing in taxes while freely enjoying the benefits of our nation’s military security, infrastructure and rule of law.”
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But the tax would be borne disproportionately by some industries, according to precedent analysis of the proposal led by the non-partisan Tax Foundation, which advocates for lower taxes.
The coal industry would face the heaviest burden under the accounting minimum tax, with a net tax increase of 7.2% of its pre-tax accounting income. Next comes automobile and truck manufacturing, which is facing a 5.1% tax increase. In dollar terms, the industries that would account for the largest accounting minimum tax liabilities are utilities ($43.3 billion) and communications ($30.6 billion).
These industries see a greater impact because they sit at the intersection of the various book tax differentials targeted by Congress.
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Lawmakers seek to address permanent discrepancies between the two measures of businesses that pay low taxes, but the proposal will most severely affect businesses with temporary timing differences between financial and taxable income; deliberate tax incentives created by Congress (such as depreciation allowances); and special items that appear in one definition of income but not the other, the Tax Foundation said.
“The Minimum Book Tax affects industries in very different ways, some of which may be unintended, reflecting a tax proposal that has not been fully approved,” the Tax Foundation wrote in its analysis. “Before introducing a new accounting income tax and asking the IRS to administer it and taxpayers to comply, lawmakers should consider whether these disparate impacts by industry are consistent with their policy goals. tax.”
Revenue generated by the policies would go to initiatives designed to fight against climate change and reining in pharmaceutical prices, as well as efforts to reduce the $30 trillion national debt. It includes about $433 billion in new spending, while about $300 billion of the new revenue generated would go to paying down the national deficit, a priority for Manchin.
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The future of the bill remains uncertain in the Senate 50-50, but if passed, it would represent one of biggest tax hikes in decades.