11/08/2022

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Biden’s minimum book tax would hit these industries the hardest, analysis shows

Biden's minimum book tax would hit these industries the hardest, analysis shows

Democrats have proposed a minimum tax on income that well-off corporations report to investors in order to help fund President Biden‘s sweeping tax and spending package.  

The proposed minimum book tax would impose a 15% minimum on corporations based on profits they publicly report on their financial statements to shareholders. The levy would only apply to companies that reported more than $1 billion in income for three straight years.  

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It would preserve “the value of business credits – including R&D, clean energy, and housing tax credits – and include some flexibilities for companies to carry forward losses, utilize foreign tax credits, and claim a minimum tax credit against regular tax in future years,” according to the three Democrats – Elizabeth Warren of Massachusetts, Angus King of Maine and Ron Wyden of Oregon – who proposed the tax. 

President Biden, center, speaks as he announces that he is nominating Jerome Powell, left, for a second four-year term as Federal Reserve chair and Lael Brainard, right, as vice chair, the No. 2 slot at the Federal Reserve, during an event in the Sou ((AP Photo/Susan Walsh))

The Congressional Budget Office determined last week that the book tax would generate about $319 billion over the next decade, which would go toward paying for Biden’s social spending and climate change plan. 

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But a new analysis by the nonpartisan Tax Foundation shows how the measure would have a disproportionate effect on certain industries.

The coal industry would face the heaviest burden under the book tax minimum, seeing a net tax hike of 7.2% of its pre-tax book income. That would be followed by automobile and truck manufacturing, which faces a 5.1% tax hike. In dollar terms, the industries that would account for the largest book minimum tax liabilities are utilities ($43.3 billion) and communication ($30.6 billion). 

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These industries see a sharper impact because they are at the intersection of the different book tax gaps targeted by Congress. Lawmakers are looking to go after permanent discrepancies between the two measures from firms paying low taxes but the proposal will more severely affect businesses with temporary timing differences between financial and taxable income; deliberate tax incentives created by Congress (such as bonus depreciation); and special items that show up in one income definition but not the other, the Tax Foundation said.

(Photo by Timothy A. Clary-Pool/Getty Images)

President Biden addresses the 76th Session of the U.N. General Assembly on September 21, 2021 at U.N. headquarters in New York City. ((Photo by Timothy A. Clary-Pool/Getty Images) / Getty Images)

“The book minimum tax affects industries very differently, some of which may be unintended, reflecting a tax proposal that has not been fully vetted,” the Tax Foundation wrote in its analysis. “Before introducing a new tax on book income, and asking the IRS to administer it and taxpayers to comply with it, lawmakers should consider whether these disparate impacts by industry are consistent with their tax policy goals.”

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