Elizabeth Warren Calls for a New Trillion-Dollar Corporate Tax

Plus, Walmart swipes at Amazon on taxes

Elizabeth Warren Calls for a New Trillion-Dollar Tax on Companies Like Amazon

Sen. Elizabeth Warren (D-MA) is proposing a new tax on corporate profits above $100 million.

The presidential candidate says her “Real Corporate Profits Tax” would prevent corporate giants like Amazon from exploiting tax laws to avoid paying federal taxes. “Because of relentless lobbying, our corporate income tax rules are filled with so many loopholes and exemptions and deductions that even companies that tell shareholders they have made more than a billion dollars in profits can end up paying no corporate income taxes,” she wrote in a post on Medium Thursday.

Her plan, the latest in a string of policy proposals, would apply an additional 7% surtax to global profits companies report to their investors rather than those they file with the IRS. It would affect the 1,200 or so most profitable companies in the country and raise more than $1 trillion in revenue over 10 years, Warren says, citing estimates from economists Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley. “It will make our biggest and most profitable corporations pay more and ensure that none of them can ever make billions and pay zero taxes again,” she wrote.

The senator argues that companies seek to minimize the profits they report to the IRS, but they want to maximize the profits they report to shareholders in order to boost their stock prices (and the executive compensation that’s tied to those prices). “Companies will be hesitant to under-report their profits to investors — which means they won’t be able to game the tax system as much as they can now,” she said.

Warren cites the examples of Amazon and Occidental Petroleum, which reported profits of $10 billion and $4.1 billion, respectively, in 2018 but paid no federal corporate income taxes. Under her proposal, Amazon would have paid $698 million and Occidental would have paid $380 million, she said.

Why it matters: Warren’s plan is “essentially undoing the $1 trillion in business tax cuts that Trump signed into law, but with the impact concentrated on a smallish number of very profitable companies,” Vox’s Matthew Yglesias says. Federal corporate tax receipts fell by $92 billion in fiscal 2018, a 31% drop, after the GOP tax law cut the corporate income tax rate from 35% to 21%.

Warren’s proposal has no chance of being enacted before the 2020 elections. But, as with Warren’s proposed wealth tax, it allows her to contrast her agenda with the tax cuts passed by Republicans in 2017 — and it will add to the perception that she’s leading the Democratic field in setting an economic policy agenda for 2020.

More Companies Paying Zero Taxes: Report

Sen. Warren’s corporate tax proposal came the same day as a new report from the Institute on Taxation and Economic Policy that says at least 60 large U.S. companies paid no taxes in 2018 — twice the number the group found in 2017, before the GOP tax cuts went into effect. Those 60 companies had $79 billion in U.S. pretax income, ITEP said, which translates to about $16.4 billion in taxes at the current 21 percent corporate tax rate. Instead, the companies collectively claimed a net corporate tax rebate of $4.3 billion.

Here are some highlights from the report:

• Amazon reported more than $10 billion in U.S. income and claimed a federal income tax rebate of $129 million.

•General Motors reported $4.3 billion in U.S. income and claimed a federal income tax rebate of $104 million.

• Netflix reported $856 million in U.S. income and claimed a federal income tax rebate of $22 million.

• Molson Coors reported $1.3 billion in U.S. income and received a federal income tax rebate of $23 million.

• IBM earned $500 million in U.S. income and received a federal income tax rebate of $342 million.

Read the full report here.

Tweet of the Day: Walmart Swipes at Amazon on Taxes

Walmart’s executive vice president of corporate affairs, Dan Bartlett, responded on Twitter Thursday to a challenge issued by Amazon CEO Jeff Bezos to other retailers to match its $15 minimum wage and employee benefits:

Trump May Allow Budget Caps to Slash Spending, Kudlow Says

White House economic advisor Larry Kudlow said Thursday that President Trump would allow sharp reductions in federal spending to take effect next year if Congress fails to agree to the White House’s 2020 budget.

“The president has indicated, if the spending caps going all the way back to the 2011 deal are not met, then we will sequester across-the-board, both defense and nondefense, excluding entitlements, but we will run by those rules,” Kudlow, the director of the president’s National Economic Council, said at an event hosted by The Hill. “That’s tough stuff. I think that’s appropriate,” he added.

Spending caps set in place by the Budget Control Act of 2011 will reduce discretionary spending by $125 billion in fiscal year 2020 if lawmakers are unable to reach a deal to raise them. Defense spending would fall by about $71 billion from current levels, and nondefense discretionary spending would drop by about $54 billion.

President Trump’s budget proposal sticks close to those caps for the most part, although it provides an additional $165 billion for defense largely through a special war-fighting account that is not subject to spending limits — a workaround widely criticized as a “gimmick” that is unlikely to find much support from lawmakers.

Congress is working a deal: Senate Majority Leader Mitch McConnell (R-KY) said earlier this week that he and House Speaker Nancy Pelosi (D-CA) are beginning talks on a two-year deal to raise the spending caps.

Senate Budget Committee Chairman Mike Enzi (R-WY) has proposed a 2020 budget that sticks to the caps while providing far less funding for the special war-fighting account.

In the House, Democrats are still struggling to agree on spending levels, with members of the Progressive Caucus scuttling a vote earlier this week, driven by concerns over the relative amounts being proposed for defense and nondefense spending. House Democratic leaders have proposed spending $631 billion on nondefense discretionary programs and $664 billion on defense next year — raising the spending caps by $34 billion and $17 billion respectively — but more liberal lawmakers are calling for $33 billion more for nondefense, to equalize the levels. On Tuesday, the House adopted a resolution that set an overall spending cap of $1.3 trillion, leaving the funding details to a later date.

But Trump has to agree: If Trump vetoes a congressional deal to raise the spending caps — he said he would “never sign another bill like this again” in March 2018 when he agreed to the last two-year spending deal — the government would face another shutdown when the new fiscal year begins on October 1 or require a short-term funding package to keep the doors open. And if Trump refuses to agree to any deal that increases the caps beyond what’s in his budget, as Kudlow suggested Thursday, automatic spending cuts would take effect in January.

The economy would take a hit: If Congress and the White House are unable to agree on a deal to raise the spending caps, the automatic spending cuts that occur under the Budget Control Act could create a significant drag on economic growth in 2020. Goldman Sachs economists Alec Phillips and Blake Taylor said last week in a note to clients that they expect fiscal policy to weigh on economic growth next year, with the worst-case scenario being a failure to raise the budget caps (see the chart below).

The most likely scenario in the Goldman analysis is a spending deal that raises the caps, though only to levels roughly equal to current spending. Even that would fail to boost the economy, however, since fiscal stimulus is produced by the rate of change in spending, not the absolute level, Phillips and Taylor said.

Reviewing the Goldman projections, Jared Bernstein, former chief economist for Vice President Biden, said that weakening fiscal stimulus is “one reason to expect 2020 growth to be closer to 2 percent than 3 percent.”

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Number of the Day: $54 Billion

Losses from damage caused by hurricane winds and storm-related flooding will total about $54 billion a year, according a new report from the Congressional Budget Office. That comes to about 0.3% of the nation’s current gross domestic product, with more than half of the losses concentrated in the residential sector. The annual cost to federal government will average about $17 billion, CBO said. The agency based its estimate on an analysis of the 12-year period from 2005 through 2016, with costs expressed in constant 2017 dollars.

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