Democrats did well. Part Three: 15% corporate minimum tax

Democrats did something popular that makes the world better.

A corporate minimum income tax of 15% is a provision in the Inflation Reduction Act.

New York Times

The Inflation Reduction Act is complicated. Most Americans would like what is in the bill if they understood what is there. They hear numbers, but not the practical benefits. The law was passed and signed in a moment of yet more Trump drama, this time involving the FBI recovery of documents taken to Mar-a-Lago. And now the news is shared with the controversy over student loan forgiveness. Amid all the noise, the 15% minimum corporate tax provision gets forgotten. 

The corporate minimum tax addresses a problem. Some very profitable companies were arranging their accounting to avoid taxation. The 15% corporate minimum tax is analogous to the Alternative Minimum Tax paid by individual taxpayers who arrange to have so many deductions and tax workarounds that they wouldn't pay anything near their scheduled marginal rate. The Alternative Minimum Tax kicks in. People caught by it don't like it. It confounds their tax strategy, which is its point.

This minimum tax for corporations is popular with the public. The vast majority of Americans, getting W-2 income from employers. They have few tax avoidance strategies. However, the opportunities for international corporations are endless. American taxpayers  observe multi-billion dollar corporations pay little or no tax. They resent it. Gallup polling for two decades has been consistent in reporting that 65% to 70% of Americans think corporations pay too little in taxes. Corporations have accountants and lobbyists to game a very game-able system.  Minimum taxes put a floor under the gamesmanship. 

There is a second, related issue. Large international companies can shift where they book income, moving their supposed corporate headquarters to low-tax jurisdictions, then pay taxes at their rate, not at the rate where most of their sales happen. The U.S. has led an effort to get all developed countries to agree to a similar 15% minimum. The Voice of America explains. 

The global minimum tax is part of a larger international taxation framework developed under the auspices of the Organization for Economic Cooperation and Development and the G-20 group of large economies. The deal brought together more than 135 countries in an effort to control “base erosion and profit shifting,” known by the acronym BEPS. 

BEPS refers to tax strategies employed by multinational corporations. The practice involves strategically placing operations in low-tax jurisdictions, thereby eroding the tax “base” of their home countries, and then “shifting” profits earned internationally so that they are paid in those low-tax jurisdictions. 

Getting international cooperation is an ongoing project. The U.S. version of the 15% minimum tax calculates income on "taxable income" rather than the "book income" preferred in Europe. Joe Manchin insisted on that. Still, the U.S. is in a position to urge a universal 15% rate, which will reduce the incentive for corporate venue shopping.  

Biden presented himself as a person who might know a thing or two about getting legislation passed. He came through. The sausage got made, notwithstanding zero margin in the U.S. senate. International cooperation on a worldwide 15% tax is the culmination of this administration's policy to return our foreign relations to rules-based international cooperation. That, too, took a mix of policy and moxie. Americans--me included--underestimated Biden. 

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