As always, a president’s proposal for a complex new policy change is just a first step. Once this goes through the meat grinder of legislation, it will likely look very different, if it comes out the other side at all.
So what’s important at this stage are both the substantive broad strokes and the fact that the administration has pulled Republicans into a fight where Democrats have the public behind them.
Here are the major features of the plan, as described by the Treasury Department:
1. Raising the corporate income tax rate to 28 percent;2. Strengthening the global minimum tax for U.S. multinational corporations;3. Reducing incentives for foreign jurisdictions to maintain ultra-low corporate tax rates by encouraging global adoption of robust minimum taxes;4. Enacting a 15 percent minimum tax on book income of large companies that report high profits, but have little taxable income;5. Replacing flawed incentives that reward excess profits from intangible assets with more generous incentives for new research and development;6. Replacing fossil fuel subsidies with incentives for clean energy production; and7. Ramping up enforcement to address corporate tax avoidance.
The increase in the corporate rate will be in many of the headlines, and since that rate was 35 percent before Republicans cut it down to 21 percent in their 2017 tax cut, it ought to be hard for corporations to argue that they can’t possibly remain competitive if they’re paying 28 percent.
In fact, the current 21 percent rate is the lowest it has been since the 1930s, and in the time between then and 2017, we had plenty of terrific economic booms.
There’s an argument to be made that the corporate tax rate is less important than all the loopholes and rebates and incentives that corporations have used their lobbying clout to insert into the tax code over the years. For instance, if you’re Nike, and you make almost $3 billion in U.S. income but don’t pay any federal income tax and even actually snag yourself a $109 million rebate, whether the corporate tax rate is 21 percent or 28 percent doesn’t really matter to you. You laugh at the tax rate.
Which is why it’s significant that the administration’s plan also contains a “minimum book tax,” which kicks in based on the profits companies report to shareholders. As it stands now, the Treasury Department notes in its report, “Corporations are simultaneously able to signal large profits to shareholders and reward executives with these returns, while claiming to the IRS that income is at such a low level that they should be freed from any federal tax obligation.”
You may recall someone else who pulled that switcheroo, valuing his properties at inflated amounts when seeking loans, then claiming they were almost worthless when it came time to pay taxes.
Another key feature of the plan would “invest in the IRS to ensure that large corporations that cross the line would be held accountable, providing an under-resourced IRS the support it needs to overhaul tax administration.”
The importance of reviving the IRS can’t be overstated. In recent years, it has seen its budget slashed, with the number of agents declining and audits plummeting. The primary beneficiaries, of course, are the ultrawealthy and corporations, who can mobilize accountants and tax lawyers who outmatch overworked IRS agents and make sure their clients pay little or nothing.
As a consequence, hundreds of billions of dollars go uncollected, which is why investing in the IRS budget may be the single most cost-effective way to improve the federal government’s balance sheet.
Of course, Republicans — who spearheaded an attack on the agency back in the 1990s and have supported cutting its budget ever since — wouldn’t stand for that. But they’re not going to be voting for this plan anyway, nor the larger infrastructure bill of which it will be a part.
Which brings us to the politics. Tax debates are too complex for most Americans to bother with, so most of them will, at best, hear the broad strokes. At its simplest, this is what the debate comes down to: President Biden and Democrats want to raise taxes on corporations. Corporations and their Republican allies don’t like that.
Which is a pretty good place for those Democrats to be, especially since there may be no more widely shared idea about taxes than, “Corporations don’t pay their fair share.” A 2019 Gallup poll found that 69 percent of Americans felt that way. In Pew Research Center polling, 62 percent said the idea that corporations aren’t paying enough bothered them “a lot,” while only 27 percent were bothered a lot by how much they themselves have to pay.
That doesn’t guarantee any legislative outcome; corporations keep their taxes low not by winning a public debate, but by quietly exercising their lobbying power and enlisting the help of legislators, especially Republicans, who are sympathetic to their plight.
But it does mean that the more Democrats talk about this plan to raise corporate taxes, the better a position they’ll be in to actually get it passed. And they’ll force Republicans to be very public about their tireless advocacy for the interests of corporations. Which wouldn’t be a bad thing at all.