Democrats’ minimum tax unlikely to disappear, so companies are looking to mitigate its impact


WASHINGTON — Congress is set to create a new minimum corporate tax, and pension advocates, renewable energy supporters and manufacturers are pushing for changes before the plan is completed.

The tax is aimed at businesses, like Amazon.com Inc.,

which generate significant profits for shareholders but, legally, pay relatively little tax. It would impose a minimum federal tax rate of 15% on many companies making at least $ 1 billion in profits, based on income reported to investors.

Knowing that the minimum tax probably can’t be beaten, companies and trade groups are looking for last-minute wins to loosen it as Congress puts it on Biden’s larger agenda. Business groups are pointing to the unintended consequences of the proposal, which has become a key part of the Democratic plan after Sen. Kyrsten Sinema (D., Arizona) blocked a simple increase in the corporate tax rate.

“There are so many companies and industries saying we need to make changes,” said Catherine Schultz, vice president of tax and tax policy at the Business Roundtable, a trade group representing the leaders of large companies. . “And the only question is, can they start cutting back a bit without creating any problems?” “

So far, most corporate advocacy seems unlikely to be successful. Lawmakers are listening to demands, but many companies want changes that would undermine the revenue generated by the plan, a Democratic Senate aide said. The minimum tax would go into effect in 2023 and generate $ 319 billion over a decade for the Democrats’ social and climate spending plan, according to the Joint Committee on Taxation. That’s the equivalent of raising the corporate tax rate to around 24% from 21%, and Democrats don’t have many other agreed-upon options to replace that much money.

“There are so many companies and industries coming in saying we need to make changes. “


– Catherine Schultz, Vice President of Tax and Fiscal Policy at the Business Roundtable

This 15% minimum tax is separate from a proposed 15% overall minimum tax on foreign profits of U.S. corporations that is included in the same bill. Minimum tax is sometimes referred to as income tax on the books because it begins with the income reported on the books of corporations, calculated according to generally accepted accounting principles. Large corporations would pay regular tax or that tax, whichever is greater. Businesses would be the most affected when they were faced with situations treated differently under tax and accounting rules.

The mechanics can be complicated and companies are looking to determine if they are affected and how they are affected. In many cases, the tax would claw back relief granted by Congress to businesses subject to the normal tax regime. Lawmakers are trying to strike a balance between increasing revenues and encouraging the behaviors they expect from companies.

“It touches on some things that are dear to Democrats’ hearts,” said Dustin Stamper, managing director of accounting firm Grant Thornton LLP.

For many companies, the biggest problem will be the accelerated write-off of capital investments, often tied to well-paying manufacturing jobs. Large initial tax deductions for accelerated depreciation are larger than business expenses for accounting income purposes, so these deductions would be more difficult to claim for minimum tax purposes.

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Either way, the proposed minimum tax could force companies to pay 15% currently, denying or delaying profit from investments companies have made in response to the 2017 tax law.

“It’s making a political choice as to whether or not the United States should be a place where industrial investment thrives or not,” said Chris Netram of the National Association of Manufacturers.

The list of companies involved is not clear and will vary each year; a Tax Foundation analysis found that the coal, automotive and utility industries would face heavier loads.

Chevron Corp.

reported lobbying on the tax. ADT Home Security Company Inc.

disclosed it to investors as a potential risk. ONEOK Pipeline and Natural Gas Company Executives Inc.

and Williams Cos. told analysts they were watching the details.

Since companies could still use many tax credits, including reductions for social housing and renewable energy production, some profitable companies would pay little or no tax in the United States even if the plan enters. in force.

Businesses that buy wireless spectrum or have minority stakes in other companies could also be affected, said Erica York, an economist at the Tax Foundation, which favors simpler and lower taxes.

Chevron has reported lobbying for a proposed minimum corporate tax.


Photo:

Bing Guan / Bloomberg News

“It’s probably no exaggeration to say that almost every business has a unique problem with the tax on books,” she said.

The proposal also raises an issue with pensions because the book income of some companies includes increases in the value of defined benefit plans, even though companies cannot use the money and do not pay taxes on that income. Under minimum tax, it could be taxable, which could discourage some companies from putting more than the minimum required amounts into their plans.

Because pension accounting fluctuates with interest rates, the proposal could introduce volatility, lawmakers say they oppose the pension system, said Lynn Dudley, senior vice president of American Benefits Council.

Sen. Rob Portman (R., Ohio) said logistics and delivery companies have contacted lawmakers about the pension issue and warned that investments and customer service could be affected. The Democratic aide said lawmakers were exploring it.

Beyond its broad effects on manufacturing, accelerated depreciation is also a problem for the renewable energy industry that Democrats are trying to help elsewhere in the bill.

Industry tax credits and direct payments are largely protected from minimum tax. But projects also often rely on upfront deductions for capital investments in their financing plans, and losing that benefit could make it more difficult to meet the Biden Plan’s climate goals, said Gregory Wetstone, president and chief executive officer. the leadership of the American Council on Renewable Energy.

Senate Finance Chairman Ron Wyden (D., Ore.) Championed his committee’s work in expanding and restructuring incentives to encourage sustainable energy.

“I wouldn’t be working around the clock to revise our energy tax code if I thought that imposing a minimum tax on big business would undo all that work,” he said.

Not all businesses are unhappy. Large retailers, who tend not to benefit much from depreciation or other relief, have insisted on this instead of an increase in the tax rate. Others see the plan not as ideal, but better than many Democrats’ preferred alternative.

“Most businesses are thrilled to have this in lieu of a corporate rate hike,” said Mr. Stamper of Grant Thornton.

Lobby for a minimum corporate tax

These articles were selected by the editors.

Write to Richard Rubin at [email protected]

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