Based on specialists, Biden plans could not guarantee Fortune 500 corporations pay income taxes

“You have 51 or 52 Fortune 500 companies [that] I haven’t paid a penny in taxes in three years, “Biden told reporters last week.” Come on man Let’s get real “

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Under Biden’s plan, companies would pay at least $ 2 trillion more in taxes than they currently do. But tax experts aren’t sure if Biden’s plan would actually significantly reduce the number of large corporations paying zero dollars in federal income taxes.

This is because Biden’s plan would continue to allow virtually all businesses to use federal tax credits and deductions to reduce their existing tax obligations – a main reason some large corporations are not paying right now. Biden’s $ 2 trillion job and infrastructure plan sees a significant expansion of these types of credit, such as clean energy investments that companies use to zero their debt to the Internal Revenue Service. In addition, the Biden government has drastically curtailed its proposal to ensure that large corporations pay at least some federal taxes and mitigated its impact by applying it to only a subset of corporations.

“Biden’s proposals will not eliminate the $ 0 big business paying phenomenon,” said Kyle Pomerleau, tax expert at the American Enterprise Institute, a conservative think tank. “I am skeptical that this plan will seriously affect the number of companies that pay nothing.”

White House officials did not deny that some large corporations were still unable to pay federal taxes as part of their plan, but said they were getting far less compared to current law. They stressed that Biden’s plan would bring in far more money from American businesses – up to $ 2.5 trillion over 15 years – than it does now.

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Under Biden’s plan, businesses would face a significantly higher domestic tax rate of 28 percent and a far steeper tax rate for overseas profits. The plan also includes aggressive measures to prevent multinationals from artificially reducing their US tax base by shifting profits overseas. Administrative officials said their plans would end international tax avoidance by multinational corporations and create a much fairer tax system overall.

“We know directionally that this will significantly increase the tax liabilities of the largest corporations,” said David Kamin, deputy director of the White House National Economic Council.

Chye-Ching Huang, a tax expert at New York University’s Tax Law Center, also said many of the companies that don’t pay taxes on the Fortune 500 would face higher tax burdens due to the proposal’s tax increases on overseas profits.

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“There are some temporary provisions that protect a number of businesses. But surely, over time, the international proposals will ensure that the multinationals that make it into the top 55 pay a lot more federal taxes, ”she said.

Still, some experts said there seems to be a difference between the rhetoric of senior administrators about the practice of big corporations paying nothing and the plans they put forward.

Biden is targeting approximately $ 400 billion in expanded clean energy loans to accelerate the US economy’s transition from fossil fuels. The US employment plan also provides for $ 180 billion in new spending on research and development, although it is unclear how much of that would go towards tax credits rather than direct spending. The plan provides tax credits to encourage housing construction and encourage businesses to set up childcare facilities on-site. These tax credits would likely reduce many companies’ overall debt to the IRS.

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Tax experts also said it was unclear whether curbing international tax avoidance would solve the problem of large corporations not paying taxes. For example, around a dozen of them are utility companies, which usually do not have any overseas operations. Steve Rosenthal, tax expert at the think tank’s Tax Policy Center, says the regulations that allow companies to deduct cost of capital, executive compensation, and losses from previous years from their liabilities appear to be the main driver of companies losing $ 0 in federal taxes numbers . These provisions are not addressed in Biden’s plan.

“I don’t know and I am skeptical that if I look at profit shifting, the 55 companies will start paying taxes. It seems unlikely to me, ”said Rosenthal.

“If you don’t like the law, change it. But Biden is going in the opposite direction in a way. He adds credits for clean energy and the like, so even more businesses may pay $ 0 in taxes. “

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To make matters worse, the Treasury Department’s proposals, which are aimed at large corporations that pay $ 0 in taxes, are limited. Part of the goal of the administration’s “book tax” plan is to protect against the companies that pay nothing and to use accounting policies to determine taxable income.

“Under the regime, highly profitable multinational corporations would no longer be able to show shareholders significant profits while completely avoiding federal income tax,” the Treasury Department said in a report on its tax proposals.

However, as written by the Biden government, this provision cannot materially affect the number of large corporations that do not pay federal income taxes. The Treasury Department’s proposal is that this tax would only apply to the approximately 200 companies in America with more than $ 2 billion in net income – less than 0.01 percent of all US companies.

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Of the 55 companies that did not pay federal income taxes in 2020, only five had net incomes greater than $ 2 billion, according to a report by the Institute for Taxes and Economic Policy, a left-wing think tank. That means the vast majority of them would not be subject to book tax.

Matt Gardner, author of the ITEP report, praised the Biden plan to significantly increase taxes paid by large corporations. However, he said it was unclear how many Fortune 500 companies would pay $ 0 under the plan. If the Biden government wanted to get rid of this problem, they could lower the book tax threshold to ensure more businesses are affected.

“We just can’t say if that would significantly reduce the number of companies paying $ 0,” Gardner said. “The minimum tax of 15 percent on book income would certainly also play a role in reducing tax avoidance. This does not mean that the minimum tax or the plan as a whole would guarantee the end of the zero tax society. But it would make zero-tax companies less likely. “

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Some tax scholars, including Pomerleau and Rosenthal, are largely skeptical about the importance of large corporations paying a certain amount of federal taxes, especially when corporations use those funds instead for research and development or other social causes pursued by policymakers.

But the policies of big companies that don’t pay have long been a powerful driver of reform. Even tax cuters like President Ronald Reagan railed against big corporations that didn’t pay. In 1985, Reagan promised that his proposals would lower the overall corporate tax rate while “ensuring that every profitable company pays taxes”. “From now on they have to pay a minimum tax. The free rides are over, “Reagan told PBS.

According to two policy advisors to the president, who spoke on condition of anonymity to reveal internal conversations, Biden is also personally affected by the lack of pay from large companies.

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“A new independent study published last week found that at least 55 of our largest companies … don’t pay federal taxes,” Biden told American Taxpayers in the Oval Office last week. “

However, Biden’s administration is full of tax professionals from academic circles where the problem is viewed more as a symbol of deeper problems.

Dan Shaviro, a tax expert at New York University, said Biden’s tax plans would ensure the American company pays its fair share in general, which in turn would reduce the importance of some individual companies setting their liability to zero.

“One reason the public is so angry with these stories [about large firms paying nothing] That’s because they know it represents an underlying reality that companies get away with a lot, ”Shaviro said. “If there were still the occasional companies that did this, but the public realized that companies were paying a lot more, those stories would be less meaningful.”

Shaviro added, “If the Biden administration were more focused on eliminating these particular stories than on improving the overall system, they would have to increase book income tax again.”

Some tax experts said it was possible Biden’s plan would limit the number of companies that pay $ 0 depending on the final details. The Treasury Department has so far only published a rough overview of its tax plans, no specific legislation. However, based on the information released so far, some tax experts believe that many companies in the US will continue to zero their liabilities.

“Administration presents this as a big and serious problem,” said Mindy Herzfeld, a tax expert at the University of Florida. “Tax experts ask if this is the case, and it’s also unclear what they got out about whether their plans would address this.”