Democrats Unveil a Corporate Minimum Tax

Three key senators released legislation that would require some U.S. companies to pay a minimum 15 percent rate on profits they report to their shareholders, in lawmakers’ latest bid to find consensus behind revenue-raising measures to fund President Joe Biden’s economic agenda.

The proposal, sponsored by Senate Finance Committee Chairman Ron Wyden and Senators Elizabeth Warren and Angus King, would require that companies which report more than $1 billion in profits to shareholders pay at least a 15 percent tax rate, even if they qualify for lots of tax breaks.

Democrats are planning to use this as an alternative to raising the corporate income tax rate, after opposition to such a move from Senator Kyrsten Sinema. Under the new plan, the regular corporate tax rate would stay at 21 percent.

The new levy would raise $300 billion to $400 billion over 10 years, according to King, an independent who caucuses with Democrats. He also said that the proposal would “dovetail” with the Biden administration’s backing of a global corporate minimum tax of 15 percent.

“We better take on tax avoidance first because that is something that is going to bring us core support among our colleagues.” Wyden said.

Warren said the plan is approved by the White House and Department of Treasury. She told reporters, “This is, in effect, the tax on companies like Amazon that report $10 billion in profits to their shareholders, to the public, set their CEO pay based on that—and then turn around to the IRS and say, hey, thanks to all the loopholes, they plan to pay nothing in taxes.”

This minimum tax would apply to about 200 companies that don’t pay a high-enough rate under the regular corporate-tax system, according to a summary of the plan. It could raise hundreds of billions of dollars of tax revenue over a decade, the summary said.

At a Tuesday lunch meeting of Senate Democrats, the idea got major support within the caucus, according to one participant. Sinema released a statement backing the idea on Tuesday evening. The Biden administration had proposed a similar plan earlier this year.

The corporate minimum tax represents a seismic shift from how corporate taxes are generally computed, which is based on companies’ income minus credits and deductions. Instead, this levy would be computed using a separate accounting method—the one used for financial statements—to compute profits and apply a 15 percent tax.

For companies that can avail themselves of lots of credits and deductions, the proposal would require a base level to still be paid to the IRS. The idea has gained popularity in Democratic circles after companies such as Amazon.com Inc., Nike Inc., and Netflix Inc. have been able to avoid paying any federal income taxes in recent years because their tax breaks offset their liabilities.

The legislation also addresses one of the major criticisms of minimum taxes: that they prevent companies from taking tax credits for activities Congress wants to encourage. The legislation would preserve the value of research and development (R&D), clean energy, and housing tax credits, according to a summary of the plan. The bill also allows credits for taxes paid to other countries and gives corporations some flexibility to carry businesses losses to a future year.

Billionaires’ Tax

The proposal comes as Democrats are struggling to get the requisite support to pass their legislation with slim margins in both chambers. Wyden said he plans to release a tax on the unrealized gains of billionaires on Tuesday evening, though that plan has been criticized for being too complicated and potentially unconstitutional. Senator Joe Manchin, a West Virginia Democrat, also said on Tuesday he opposes a plan to require banks to report account data to the IRS to help find tax evaders.

The proposal is separate from the 15 percent global minimum tax that Treasury Secretary Janet Yellen brokered with almost 140 countries earlier this year. That requires companies worldwide to pay at least a 15 percent rate, no matter where they operate. Democrats are planning to include language to implement that change in the tax and spending bill.

—With assistance from Kaustuv Basu.