Progressive Democrats have been grousing for what seems like eons about the fact that some of the nation’s wealthiest corporations avoid paying their fair share in taxes. This weekend, the Senate inched a step closer to a fix when it approved a historic $370 billion climate and healthcare spending package that would be paid for almost entirely by new tax increases on large corporations.
The measure seeks to end a decades-long trend that saw some of the world’s most profitable companies find ways to shelter their profits from federal income taxation, often by accelerating depreciation, offshoring profits, awarding stock options to executives and maximizing tax credits. The spending package, known as the Inflation Reduction Act, would require corporations with at least $1 billion in net income (or profit) to pay a 15% corporate minimum tax based on the earnings they report to shareholders on financial statements. A company like Amazon, which posted annual net income of $33.4 billion in 2021, would pay at least $5 billion in taxes under the provision.
The proposed 15% tax rate is below the current threshold of 21% instituted by former President Donald Trump in 2019, but tax credits and loopholes have allowed some of the largest corporations to pay well below both amounts in recent years, making the 15% floor requirement a more attractive approach for proponents of the bill.
Annual Tax Bill: $0.00
At least 55 of the largest U.S. corporations paid no federal corporate taxes on their 2020 profits, according to the Institute on Taxation and Economic Policy. The list of tax-avoiding corporations includes some of the world’s most recognizable brands, such as Nike, Dish Network and FedEx. These 55 corporations would have paid a collective total of $8.5 billion based on their 2020 income, according to the report, but they instead received a combined $3.5 billion in tax rebates.
“The bottom line is that corporate tax cuts and corporate tax avoidance benefit high-income Americans and foreign investors, not working people in the United States,” ITEP’s Executive Director Amy Hanauer said in her testimony to the Senate Budget Committee in March 2021.
A separate report conducted by the Center for American Progress found that 19 companies in the Fortune 100 alone paid little or no tax on their 2021 earnings. Amazon, Exxon Mobil, AT&T, Bank of America, Ford and General Motors were among companies found to have paid 6% or less of their profits on taxes.
The Inflation Reduction Act, which is headed for a vote in the House this week, would change that, forcing billion-dollar corporations to pay at least 15% of their earnings to help fund new climate and healthcare programs.
“For small business owners, it’s really about leveling the playing field,” says Rhett Buttle, senior advisor for Small Business for America’s Future, a left-leaning advocacy organization. “Larger businesses have the ability to hire accountants and lawyers to work the tax system, essentially to get out of paying taxes. And so it really gives them a financial advantage over pricing, and small business owners don’t always have the ability to do that.”
What It Means For Consumers
While the proposed tax law does not directly raise taxes on households or small business owners making below $400,000, opponents say it could burden large corporations and reduce economic growth, lower wages and eliminate jobs. The right-leaning Tax Foundation says that the 15% minimum corporate tax comes “at the expense of more investment, more job opportunities, and higher wages.” Sen. John Thune, a Republican from South Dakota, says the taxes would result in higher prices for consumers in nearly every income bracket.
Sen. Joe Manchin, a Democrat from West Virginia who sank parts of the spending bill nearly eight months ago, told Fox News last week that taxes will not be raised for regular Americans.
“How in the world can you be raising taxes when all we’re saying is the wealthiest corporations in America, 55 of them, pay zero to help this great country of ours to defend ourselves,” Manchin said.
In addition to the new corporate tax provisions, the Senate-passed Inflation Reduction Act is aimed at funding an ambitious slate of climate and energy programs aimed at helping the U.S. to cut greenhouse gas emissions about 40% below 2005 levels by the end of the decade. The measure would also slash prescription drug costs by allowing Medicare to negotiate the prices of medicines directly with drugmakers and capping the amount that recipients pay out of pocket for drugs each year at $2,000.