A new alternative minimum corporate tax is set to hit only companies with more than $1 billion in profits at the insistence of the Biden administration, the bill’s Senate co-author said on Wednesday.
Sen. Angus King, an independent from Maine who caucuses with Democrats, said on Tuesday evening that his original version of the legislation, proposed in August, would target any company earning at least $100 million. Asked on Wednesday by The Intercept where opposition to that threshold came from, King said that “it came from the administration and I’m not sure why.”
“Our original proposal raised twice as much money and it was a lower tax rate,” said King.
The new version, aimed to be included in the Build Back Better Act, applies a 15 percent minimum tax rate to companies that earned $1 billion or more. Many extremely profitable companies are currently able to claim to the IRS that they made nothing. The Biden administration’s budget from earlier this year proposed setting the threshold at $2 billion.
“I think it was Treasury,” King added. “I don’t know if it was ease of administration or what the motivation was, but I’m satisfied with where we are now. Although the billion-dollar threshold may be too high and maybe something in between would make more sense and raise more money.”
Another reporter asked why the threshold wasn’t put somewhere in the middle, like $500 million. “I agree, nice work, call the White House,” King suggested. The idea was included in President Joe Biden’s American Jobs Plan, which proposed a 15 percent minimum rate, but was designed to target only “large companies.”
The original threshold would have applied to roughly 1,300 companies, while the new version hits just around 200. The $1 billion benchmark spares some of the country’s largest corporations from the new tax, like defense contractor Huntington Ingalls Industries, management consulting firm Booz Allen Hamilton, and airline JetBlue.
Democrats are in need of additional revenue for their package, as Sen. Kyrsten Sinema, D-Ariz., has opposed raising corporate rates or personal rates on the wealthy, as well as allowing Medicare to negotiate drug prices, and Sen. Joe Manchin, D-W.Va., finds a tax on billionaires “punitive.”
The alternative minimum corporate tax has the support of all 50 Democrats in the caucus. “Congratulations, good bill,” Sinema told King on the Senate floor Wednesday, King relayed after the encounter.
The tax is modeled on the alternative minimum personal income tax, which was created in 1969 to grapple with the superrich having figured out how to game the system and pay no taxes on their income. The AMT required they pay at least a minimum amount on their income. (So the rich responded by rearranging their compensation to pretend they have no income, therefore an AMT doesn’t apply. The new attempt to tax billionaires anyway is currently being torpedoed by Manchin.)
Many companies currently get away with paying little to no corporate taxes by writing off depreciating assets, stock options for employees, and other expenditures so that they have little to no taxable income — or even a loss — to report to the IRS, despite boasting massive gains to their shareholders.
As just one notorious example, Amazon disclosed at least $10 billion in profits to its shareholders but paid no federal taxes in 2018 and even collected millions in refunds from the federal government, thanks to a series of deductions and credits.
The Democrats’ new corporate tax will still permit some deductions and credits — like for research and development, clean energy investments, and other spending — to continue, meaning the highly profitable companies could still reduce their taxable income to little to nothing and dodge paying their fair share to the federal government.
King told reporters Tuesday evening that the new corporate tax would raise $300 or $400 billion over 10 years from about 200 companies around the country. (With the $100 million threshold, the legislation would have raised roughly $717 billion, according to an analysis by the Joint Committee on Taxation, a source involved said.)
“For decades, [the giant corporations] have lobbied this Congress to open another loophole, a little twist, a little turn and … then they’ve gotten the accountants to come in and expand those loopholes as new regulations,” Sen. Elizabeth Warren, D-Mass., a member of the Senate Finance Committee, told reporters. “And the result is that they are now in the business of avoiding paying their taxes, and they make a lot of money out there every single year, so the idea here is to say ‘Enough.’”
If the new corporate tax manages to raise significant revenue as Democrats expect, it could go a long way in funding Biden’s Build Back Better spending priorities. Still, Democrats have had to significantly scale back their plans in recent weeks as a result of demands from right-leaning lawmakers like Manchin and Sinema.
With the Senate split 50-50, Democrats can’t afford to lose a single vote on their bill, which is using the budget reconciliation process to pass with a simple majority. Now, plans to expand Medicare coverage, ensure paid family leave, and other initiatives are under pressure.
The Senate Democrats’ new tax proposals will also have to be approved by their counterparts in the House.