President Biden’s social spending and climate plan relies on a new 15% minimum tax on large corporations, which is projected to generate about $320 billion over the next decade, making it the single largest source of revenue in the bill. But senior Treasury Department officials have raised some red flags about the new tax, concerned that it might be difficult to implement, would make the tax code less efficient and could weaken some of the clean energy incentives elsewhere in the legislation, The Washington Post’s Jeff Stein reports.
As Democrats battled in recent months over the details of their Build Back Better plan and sought to ensure that it could get the votes it needs to pass the Senate, they were forced to drop their original plans to raise the corporate tax rate from 21% to 28% because of opposition from Sen. Kyrsten Sinema (D-AZ).
They instead wound up turning to a minimum tax on corporations with more than $1 billion in annual profits. “The new minimum tax is intended to ensure that all big corporations at least face a 15 percent rate,” Stein explains, “but it works by eliminating tax breaks — such as benefits for new capital investments — that Congress has put in place to achieve other policy goals.”
Some Democratic lawmakers and climate advocates have already expressed concern that the new plan would undercut the Build Back Better bill’s new tax incentives to promote investments in clean energy. An analysis by the American Clean Power Association suggested that limiting the ability of companies to deduct large capital investments will lead to an increase of 15% to 20% in the cost of clean energy and result in 820 million more metric tons of carbon dioxide compared to the original plan, Stein says.
Officials in the Treasury Office of Tax Policy are also uneasy about the minimum tax, Stein reports, adding that many tax policy experts view the idea as less efficient and effective than the straightforward corporate rate hike Democrats abandoned because of Sinema. “If you just raise the corporate rate, it’s better on efficiency grounds, on equity grounds, on the amount of money that can be raised,” Steve Rosenthal, a senior fellow at the Tax Policy Center, told the Post. “I expect the Biden administration, like the rest of us, thinks a corporate minimum tax is second-best to a corporate rate increase.”
In a statement to the Post, the Treasury Department disputed the idea that it does not fully back the latest plan. “As is the case when developing any tax policy, Treasury broadly surveyed considerations relevant to adopting a corporate minimum tax before advancing it as a major proposal in the Administration’s fiscal year budget,” Alexandra LaManna, a Treasury spokeswoman, said. “The Build Back Better Act’s proposed corporate minimum tax, which is very similar, would prevent the largest 0.00075 percent of U.S. corporations from paying little or no income tax and raise significant revenue so we can invest in our economy.”
The bottom line: The corporate minimum tax may be the second best idea, but it’s the best one Democrats can all get behind. This anonymous quote in Stein’s piece sums up the situation neatly: “The Treasury people whose job it is to say if something is good tax policy know it is not, but the White House people whose job it is to get Kyrsten Sinema’s vote have given no other choice.”