Half of the estimated $313 billion tax increase from the book minimum tax proposed in legislation aimed at addressing inflation would be borne by domestic manufacturers, according to a congressional analysis whose findings drew criticism from a top Republican senator.
Sen. Mike Crapo, an Idaho Republican who is his party’s ranking member on the Senate Finance Committee, on July 28 cited the analysis by Congress’ nonpartisan Joint Committee on Taxation of the book minimum tax in the Inflation Reduction Act of 2022. The two-page overview by the JCT of the proposed 15% book minimum tax—to be based on a company’s financial statements rather than tax returns—was posted on Crapo’s committee webpage.
The JCT noted in the analysis that it has projected “that only approximately 150 taxpayers annually will be subject to the proposed book minimum tax.” It estimated that 49.7% of “all manufacturing” would be hit by the additional tax, a finding that Crapo—who had requested the breakdown—seized on.
“The JCT confirmed what we have been saying for over a year: This fundamentally flawed proposal, which has not been properly vetted by either congressional tax-writing committee, risks severely harming American manufacturers, exacerbating supply-chain disruptions, and ultimately costing U.S. jobs and investment,” he said in a statement.
According to Crapo, the minimum tax would further harm an industry he said is already struggling with inflation, supply chain disruptions, and “an impending recession.”
“This is a domestic manufacturing tax, plain and simple,” his statement continued. “Now is not the time to resurrect a harmful policy that would overwhelmingly hit American manufacturers and supply chains, as well as undercut critical research and development and investment in emerging technologies.”
Crapo’s comments echo those of the industry’s main lobbying group. “Raising taxes now will hurt manufacturers’ ability to keep delivering for our people and mean fewer opportunities for Americans already worried about their financial future,” the National Association of Manufacturers said in a statement July 27.
The JCT analysis is among few details that have been made public about the Inflation Reduction Act, which as a budget reconciliation package can be passed by the Senate with a simple majority rather than the 60-vote threshold needed for most legislation. Since President Joe Biden began suggesting a book minimum tax while still a candidate in 2020, some practitioners have said the levy would add to the tax code’s complexity and possibly encourage companies to manipulate their financial statements.
In a related finding issued July 25, the JCT estimated that the government would collect an additional $319 billion over 10 years by implementing the 15% global minimum tax and exercising its undertaxed-profit rule (UTPR).
The UTPR is a “top-up tax” called for in one of two key provisions, or “pillars,” of a global agreement on corporate tax reform that has been negotiated through the Organization for Economic Cooperation and Development. Biden has pushed for legislative changes to the Code so that U.S. tax laws align with terms of the OECD-brokered deal. Among these is the imposition of a UTPR, which would have to be paid by a multinational corporation if its effective tax rate worldwide was below 15%. Under model rules issued by the OECD, the effective rate would be calculated by dividing the amount of tax a company paid in a jurisdiction by the amount of profits earned there, with tax credits regarded as a reduction in tax payments.
Crapo is a leading voice among congressional Republicans who have blasted the alternative minimum tax and demanded it be removed from the Biden administration’s proposed Code revisions.
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