PInsurgent Democrats have grumbled for eons about the fact that some of the country’s wealthiest corporations are avoiding paying their fair share of taxes. This weekend, the Senate took a step closer to a solution when it approved a historic $370 billion climate and health spending package that would be paid almost entirely by new tax hikes for big companies.
The measure aims to end a decade-long trend in which some of the world’s most profitable companies found ways to protect their profits from federal income taxes, often through accelerated depreciation, profit shifting, granting stock options to executives and maximizing tax credits. Known as the Inflation Reduction Act, the spending package would require companies with net income (or profits) of at least $1 billion to pay a minimum corporate tax rate of 15% based on profits they report to shareholders in financial statements. A company like Amazon, which had annual net income of $33.4 billion in 2021, would pay at least $5 billion in taxes under the provision.
The proposed 15% tax rate is below the current 21% threshold introduced by former President Donald Trump in 2019, but tax credits and loopholes have allowed some of the largest companies to pay well below both amounts in recent years, hitting the 15% floor requires a more attractive approach for the bill’s supporters.
Annual tax bill: $0.00
According to the Institute on Taxation and Economic Policy, at least 55 of the largest US companies paid no federal corporate taxes on their profits in 2020. The list of tax-avoiding companies includes some of the world’s best-known brands, such as Nike, Dish Network and FedEx. Those 55 companies would have paid a total of $8.5 billion based on their 2020 income, according to the report, but instead received a total of $3.5 billion in tax refunds.
“The bottom line is that high-income Americans and foreign investors benefit from corporate tax cuts and corporate tax avoidance, not working people in the United States,” ITEP Executive Director Amy Hanauer said in testimony before the Senate Budget Committee in March 2021.
A separate report by the Center for American Progress found that 19 Fortune 100 companies alone paid little or no tax on their 2021 earnings. Amazon, Exxon Mobil, AT&T, Bank of America, Ford, and General Motors were among the companies that paid 6% or less of their profits in taxes.
The Anti-Inflation Act, due to be voted on in the House of Representatives this week, would change that, forcing billion-dollar companies to pay at least 15% of their revenues to fund new climate and health programs.
“For small business owners, it’s really about leveling the playing field,” says Rhett Buttle, senior advisor at Small Business for America’s Future, an advocacy group. “Larger companies have the ability to hire accountants and lawyers to work the tax system, essentially to pay taxes. And so they really have a financial advantage over pricing, and small business owners don’t always have the ability to do that.”
What it means for consumers
While the proposed tax law doesn’t directly increase taxes on households or small business owners earning less than $400,000, opponents say it could weigh on big businesses and reduce economic growth, lower wages and shed jobs. The right-wing Tax Foundation says the 15% minimum corporate tax comes “at the expense of more investment, more job opportunities and higher wages”. Senator John Thune, a Republican from South Dakota, says the taxes will result in higher prices for consumers in almost every income bracket.
Sen. Joe Manchin, a West Virginia Democrat who lowered parts of the spending bill nearly eight months ago, told Fox News last week that the taxes will not be raised for ordinary Americans.
“How on earth can you raise taxes if all we’re saying is that the richest corporations in America, 55 of them, don’t pay anything to help our great country defend itself,” Manchin said.
In addition to new corporate tax rules, the Inflation Control Act passed by the Senate aims to fund an ambitious list of climate and energy programs that would help the US cut greenhouse gas emissions by about 40% below 2005 levels by the end of the decade. The measure would also reduce prescription drug costs by allowing Medicare to negotiate drug prices directly with drugmakers and capping the amount recipients pay out of pocket for drugs each year to $2,000.
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