Biden administration releases plans for new minimum tax on large companies

The Biden administration on Thursday unfurled new draft rules that could raise taxes on about 100 large, highly profitable companies, some of which pay little or nothing to the federal government each year, touching off a bruising fight that will coincide with a broader reexamination of the U.S. tax code in 2025.

The release of the extraordinarily technical, roughly 600-page blueprint marked a critical step in a process now two years in the making, after President Joe Biden enacted a signature economic package that cracked down on firms that rely on shrewd accounting to reduce their tax bills significantly.

But the new federal tax guidelines arrive in the midst of a grueling election season, the outcome of which will shape a looming partisan battle in Washington over a set of soon-expiring tax cuts adopted in 2017 under President Donald Trump. The 2024 Republican presidential nominee and his Democratic opponent, Vice President Kamala Harris, have sharply divergent views about the way the U.S. government raises revenue, setting up a pivotal debate over the future of America’s finances.

Under the nation’s byzantine tax system, corporate income is taxed at a rate of 21 percent. In reality, though, many businesses see much lower bills, thanks in part to rules that allow companies to deduct some incurred losses or expenses, such as infrastructure improvements or research. With creative accounting, some of the nation’s most profitable firms can reduce their effective rates dramatically, potentially to zero.

Having failed to raise the corporate rate wholesale, Biden secured a new minimum 15 percent tax on companies that report more than $1 billion in income as part of the Inflation Reduction Act in 2022. Democrats had hoped this would help pay for the climate and health-care investments they achieved at the time.

By the Treasury Department’s latest estimates, the corporate minimum tax is expected to generate roughly $250 billion in revenue over the next decade, including about $20 billion next year. But the finer details of the government’s policy are not entirely settled, and federal officials are not expected to finalize the new minimum tax until next year.

In a briefing with reporters, Wally Adeyemo, the deputy treasury secretary, still maintained that the proposal addresses a disparity that allows companies to report “record profits” while paying very little to the federal government.

“We establish a degree of tax fairness, making sure that these companies that benefit from the investments we make in the economy are helping to pay for them,” he said.

The exact companies that would be subject to the new corporate alternative minimum tax, known as CAMT, are not clear, though administration officials have said the number is expected to reach close to 100 firms. Previously, researchers at the University of North Carolina studied balance sheets and found 78 companies that could soon owe billions of dollars—including Amazon, AT&T and Berkshire Hathaway—though some later said they did not believe they would have to pay it. (Amazon founder Jeff Bezos owns The Washington Post.)

So far, only a handful of companies, including Airbnb and Duke Energy, have signaled in securities filings to investors they face new tax liabilities from Biden’s overhaul. Technically, the tax took effect in 2023, though federal officials said this week that some corporate taxpayers have not yet filed returns for that year.

Under the system, companies must calculate their tax bills based on a new figure—the “book income” on the financial statements that they report to their investors—rather than the bottom-line taxable income that firms have long used. However, the law still allows corporate taxpayers to benefit from certain deductions, including tax credits meant to promote the use of renewable energy—meaning some still could end up paying rates below the 15 percent minimum.

“The whole premise behind financial statements was that it was going to be simple,” said Jeffrey Hoopes, who produced the research for the University of North Carolina at Chapel Hill. After all, lawmakers naively thought, companies already report their book income to their shareholders each year. “You already had this number. Just make sure the companies were paying 15 percent of that number.”

But Congress left the full logistics of the plan to the Treasury Department, which said Thursday that it would solicit public comment into next year on its intricate proposal. In the meantime, many tax experts said corporations would face considerable, vexing work to figure out exactly what qualifies as income—and how much they must pay.

Reuven Avi-Yonah, a tax law professor at the University of Michigan, said his initial reading suggested that the Treasury Department had closed off some key avenues that companies might have used to lower their tax bills. That, he said, could touch off fierce opposition among businesses, and potentially even lawsuits, if the agency holds its ground.

“What I’m interested in mostly is whether they’ll have trouble with taxpayers challenging the regulations,” Avi-Yonah said. “There’s been tremendous criticism of the whole concept.”

Even before releasing its draft, the Treasury Department heard an earful of criticism from major lobbying groups, including the U.S. Chamber of Commerce along with organizations that represent manufacturers, drug giants and technology firms, which sought to expand the tax breaks they could still apply under the new corporate minimum.

“We appreciate the Treasury Department finally releasing a proposed rule and will review it carefully,” said Neil Bradley, the executive vice president at the Chamber, in a statement. “However, imposing taxes based on book income will distort and complicate the tax code, punishing businesses who are making the very investments in future economic growth and that will harm job creation and innovation.”

Those lobbyists are likely to push for additional changes at the Treasury Department, while ratcheting up their efforts in Congress as lawmakers debate the future of Trump’s 2017 tax cuts. Some Republican lawmakers have explicitly pledged to repeal Biden’s corporate minimum as part of their broader assault against the Inflation Reduction Act.

The tenor of that debate hinges greatly on the outcome of the 2024 election, as the two parties have presented vastly different visions for the future of the U.S. code.

Trump seeks to extend the tax cuts that he secured during his time in office, including lower rates for Americans at all income levels, and generous deductions for certain business expenses. He has also endorsed a deeper cut to the corporate tax rate than he initially achieved, aiming to set it at 15 percent for companies that produce goods domestically.

Harris, in contrast, broadly has aligned herself with some of Biden’s original tax proposals, two years after serving as the tiebreaking vote to clinch final passage of the Inflation Reduction Act. She has endorsed raising income tax rates on high earners, lifting the corporate tax rate to 28 percent and offering new tax breaks for small businesses and lower-income families with children.