Attention FAE Customers:
Please be aware that NASBA credits are awarded based on whether the events are webcast or in-person, as well as on the number of CPE credits.
Please check the event registration page to see if NASBA credits are being awarded for the programs you select.

As Biden Signs Inflation Reduction Act, Analysts Weigh in on Corporate Tax Provisions

Ruth Singleton
Published Date:
Aug 16, 2022

Following the Senate’s passage of the landmark climate and tax bill, known as the Inflation Reduction Act of 2022, a week ago, the House of Representatives passed the legislation on Friday, and President Joe Biden is scheduled to sign it into law Tuesday. Analysts such as the to the Tax Foundation, which generally opposes tax increases, have now weighed in on the two main corporate tax provisions. One imposes a 15 percent minimum tax on corporate book income for corporations with profits over $1 billion, effective for tax years beginning after Dec. 31, 2022. The other creates a 1 percent excise tax on the value of stock repurchases during the taxable year, net of new issuances of stock, effective for repurchases after Dec. 31, 2022. Excluded from the tax are stock contributed to retirement accounts, pensions, and employee-stock ownership plans (ESOPs).

The Washington Post reported that the minimum tax proposal would raise $220 billion over 10 years, according to the Joint Committee on Taxation, a nonpartisan congressional body that analyzes tax bills. The minimum tax rate would apply to companies that reported to shareholders an annual average of $1 billion in annual profit over three years. 

Using an analysis of Calcbench data, the Post calculated that more than 250 companies in the S&P 500 averaged more than $1 billion in pretax income over the last three years. Of those, 83 paid less than 15 percent in income tax globally. The list includes tech companies such as Amazon and Intel, banks such as Bank of America and U.S. Bancorp, telecommunications companies such as Verizon and AT&T, and other well-known corporations such as General Motors and UPS. 

Nevertheless, the Post reported, even with the corporate minimum tax, companies can still use carve-outs for research and development, investment expenses and others to lower their tax bills. Clean-energy tax credits could also reduce the corporate minimum tax rate. The Post reach out to Daniel Bunn, executive vice president at the Tax Foundation, who said in an email that, because of these exemptions, it would remain possible for profitable corporations to achieve a tax rate below 15 percent. 

The Post also reported that the 1 percent stock buyback tax is projected to raise $74 billion over the next decade, according to congressional estimates, and is key to funding some of the big spending on initiatives including credits to buy electric cars. The tax could bring in massive sums from some of the nation’s largest stock repurchasers, including tech giants Apple, Google parent Alphabet and Meta, Facebook’s parent company.

The Post quoted Mark Mazur, the Biden administration’s former assistant treasury secretary for tax policy, who said, “Very seldom does a totally brand new revenue source pop up. That’s kind of a big deal. It’s going to raise a ton of revenue and it has the potential to change behavior.”

The Post noted that in the past year, the top 100 U.S. firms purchased $816 billion worth of their own shares, according to Bloomberg data. The top four were tech companies: Apple bought back $85.7 billion of its shares; Alphabet (Google) bought back$54.4 billion; Meta (Facebook) bought back $43.5 billion, and Microsoft bought back $28 billion.

The Post also noted that buybacks allow corporations more leverage in the market by holding on to equity and creating artificial demand for their shares. For those reasons, such purchases were illegal until 1982. The Securities and Exchange Commission lifted that ban, reasoning that companies needed to repurchase shares for legitimate reasons, according to Will McBride, vice president of federal tax policy at the Tax Foundation. McBride said that the new tax, while an effective revenue generator, risks burdening businesses or forcing them into less efficient methods of returning money to investors. 

But proponents of the legislation, such as Sen. Sherrod Brown (D-Ohio) hope that the new tax will change corporations’ behavior and motivate businesses to either spend more money on internal investments—many of which can be written off tax bills—or distribute profits as dividends on a more consistent schedule. 

“We’ve known for years that stock buybacks are a problem that they distort the market, they lead to less long-term economic growth, and they divert investment from workers,” Brown said in a statement. “This excise tax is an important step to rein in corporations rewarding their shareholders over workers, and one that will make sure taxpayers benefit if they do. No matter how corporations respond to this, workers are better off.” 

The Tax Foundation estimated that corporate minimum tax on corporate book income would reduce GDP by 0.1 percent and cost about 20,000 jobs. The Foundation noted that while the book tax now exempts accelerated depreciation, tax credits, and certain other items, it remains a substantial tax increase on corporate income as it hits several other book-tax differences and limits the ability to carry forward losses. The foundation estimated that the excise tax on stock buybacks would eliminate about 7,000 jobs. 

On the other hand, the Tax Foundation estimated that the bill would result in a $224 billion reduction in the deficit (including interest payments) during the first decade and continue to reduce deficits thereafter, leading to a decrease in payments to foreign owners of the national debt and a 0.1 percent increase in long-run gross national product (GNP).  

Click here to see more of the latest news from the NYSSCPA.