Here we go again with another Democrat tax ploy that allegedly only affects a few.
Elizabeth Warren introduces a Corporate Alternative Minimum Tax.
The tentative minimum tax for the taxable year shall be the excess of 15 percent of the adjusted financial statement income for the taxable year (as determined under section 56A), over the corporate AMT foreign tax credit for the taxable year. In the case of any corporation which is not an applicable corporation, the tentative minimum tax for the taxable year shall be zero.
Corporate Minimum Tax Resurfaces
In the hunt for money, the WSJ comments Corporate Minimum Tax Resurfaces
The plan, backed by Sens. Elizabeth Warren (D., Mass.), Angus King (I., Maine) and Ron Wyden (D., Ore.) would affect about 200 companies and could raise hundreds of billions of dollars, the sponsors said. It isn’t clear yet what will be in the final plan, and the late-emerging proposals have encountered resistance among Democrats, while Republicans continue to be unified in opposition to the Biden agenda.
“Many profitable, U.S.-based corporations pay zero federal corporate income tax,” Mr. King said. “Our proposal is about simple fiscal sense and common fairness.”
The plan is designed to raise money from companies without raising the 21% corporate income-tax rate.
Impacted Companies
The bill affects companies that have an “average annual adjusted financial statement income which is greater than $1,000,000,000“.
There are other restrictions, but the bill largely targets US technology giants but not by name.
Retailers and companies that largely operate in the US are generally not targeted, at least for now.
What About Capital Investments?
The Journal notes that companies that make capital investments are allowed to take immediate tax deductions for the full cost but must spread the accounting expense over several years.
This tends to leave them with relatively low tax rates compared with their financial-statement income in the current year and leave them subject to be hit by the minimum tax.
In short, the AMT is likely to reduce investment. The Institute on Taxation and Economic Policy, a progressive think tank in Washington, disputes that idea.
Foot in the Door
Q: Where does it stop?
A: $0
Once passed, Democrats hope to modify the income requirement from $1 billion to $500 million, to $250 million and then to nothing.
Perhaps that transition happens in one big bang.
15% Global Minimum Tax rate
Inquiring minds may be wondering if this is the same as Janet Yellen’s proposed 15% minimum global tax rate.
No, Warren’s proposal is different.
I discussed the 15% GMT in Yellen Provides Another Reason to Scrap the Whole Build Back Better Plan.
Treasury Secretary Janet Yellen is doing an international end run via an OECD agreement to force Congress into damaging tax hikes.
Yellen seeks to tax gains on a “on a jurisdictional basis”, in other words, country-by-country.
For example, if a Company makes money in Brazil but loses the same amount of money in South Africa, the two do not net out.
To understand what’s going on, please consider Biden’s Country-by-Country Tax Canard
Under the 2017 tax reform, American companies pay U.S. tax on global profits as those profits arise each year. This is done largely via the global intangible low-tax income, or Gilti, regime that imposes an effective tax rate of at least 13.125% on overseas profits arising especially from intellectual property held by offshore subsidiaries. The Biden plan would increase the Gilti tax rate to a statutory 21% (and an effective 26.25% after accounting for quirky tax mechanics).
The Biden plan also would overhaul how companies calculate Gilti liability. Currently companies aggregate overseas earnings, losses and foreign tax credits in various markets into a single global calculation. The Biden plan would go country-by-country, meaning that for each jurisdiction in which a company does business it would have to compute its Gilti taxable profit, work out any local tax credits, and then figure the tax due.
Country-by-country reporting also threatens to make overseas investment uneconomical. A flaw in the 2017 version of Gilti—which the Biden plan leaves in place—is that it doesn’t allow companies to carry losses forward or back.
Under Gilti, if an American company starts a new subsidiary in high-tax Italy that makes losses its first few years, that company still will owe tax in the subsidiary’s first profitable year. The partial solution in 2017 was to allow companies to calculate Gilti on a global basis, so profits in some places would offset losses in others.
Yellen’s proposal is a nightmare for corporations and sure to limit investment.
Yellen voluntarily agreed to OECD language regarding jurisdictional basis in an attempt to railroad Congress into supporting a 15% minimum GMT.
Yellen’s GMT is in addition to what Warren proposes.
Another Bait and Switch
Warren’s proposal is another one of those ideas that will allegedly impact only billionaires or billion income companies.
It won’t stop there.
And it’s pretty clear her wealth tax idea is unconstitutional. But Democrats, especially Elizabeth Warren, just don’t give a damn.
For discussion, please see Digging Further Into the Question “Is Taxing Unrealized Gains Constitutional?”
Thanks for Tuning In!
Like these reports? If so, please Subscribe to MishTalk Email Alerts.
Subscribers get an email alert of each post as they happen.
Read the ones you like and you can unsubscribe at any time.If you have subscribed and do not get email alerts, please check your spam folder.
Mish
Expect those with no economic sense to love the idea, especially low income voters who support Bernie.
Eventually, this, or something like this will pass. It will not pass today, but insane proposals today are usually considered reasonable in 10 years time.
Invest accordingly.