Corporate America had warned President Joe Biden and congressional Democrats not to tax large corporations since they were elected to office more than 18 months ago.
When lawmakers approved those tax hikes as part of a $700 billion stimulus package that passed the Senate on Sunday and is expected to receive a final vote in the House of Representatives later this week, companies and their lobbyists howled in protest.
The bill would impose “significant new tax hikes and unprecedented government price controls,” the US Chamber of Commerce warned. Its tax rules would “deal a blow to our industry’s ability to raise wages, hire workers and invest in our communities,” the National Association of Manufacturers said.
The Business Roundtable, which represents blue-chip companies in Washington, estimated the package would impose $300 billion in new costs on industry just as the economy was going downhill.
The criticism threatens to escalate tensions between US business and the Biden administration and Congressional Democrats at the highest levels of the current presidency just three months before the midterm elections.
For the White House and its allies in Congress, the tax hikes on America’s corporations — which represent the biggest change in U.S. tax policy since then-President Donald Trump’s tax cuts in 2017 — were a necessity to generate the revenue needed to meet spending and to reduce the deficit in times of high inflation.
But they were also a matter of fairness, to prevent large corporations from paying much lower tax rates than many individuals and smaller companies. “I am a capitalist. I’m not trying to punish anyone,” Biden said Friday. “But I tell everyone – everyone should pay their fair share. Just their fair share.”
But business groups have never accepted that they should foot the bill for new government spending proposals, though many support clean energy stimulus to fight climate change.
Their grievances were somewhat mitigated by the fact that American companies were able to avoid the worst-case scenario for taxes — an increase in the statutory corporate tax rate, which Biden originally wanted to raise from 21 percent to 28 percent.
Though the vast majority of Democrats supported the measure, Kyrsten Sinema, the centrist Arizona senator who wields outsize influence in a chamber evenly divided along party lines, opposed any tax rate hikes, to the relief of many business lobbyists.
“If the tax reforms of 2017 were a 10 and Build Back Better [Biden’s original plan] was a zero, where is that? I guess I’d say it’s a five,” said Neil Bradley, the chamber’s chief policy officer. “It didn’t lower taxes; it raised taxes, but it’s way better than Build Back Better.”
However, the fallback measures for an increase in the corporate tax rate have also been unpalatable for companies. The most widespread source of concern is a provision to levy a minimum tax of 15 percent on companies that make more than $1 billion.
In a letter highlighted last month by the liberal-minded Center for American Progress, Thomas Barthold, chief of staff for the Congressional Joint Committee on Taxation, estimated that only about 150 companies would have to pay the tax each year, but that it brings in $313 could billion by 2031.
Wall Street analysts were more optimistic about the impact of the bill, with Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, estimating that the new taxes would increase earnings per share for the S&P 500 “by only a minimum of 1 percent.” would burden companies.
Two notable exceptions to the minimum tax were also included in the final version of the law – also at Sinema’s urging. One relates to the ability for manufacturers to write off certain corporate investments and the other means that the measure does not apply to portfolio companies of private equity groups.
Sinema has also been successful in ensuring that the preferential tax treatment of private equity and hedge fund manager profits – known as carried interest – remained untouched.
But any consolation for companies from those concessions has been undone by the last-minute new 1 percent tax on share buybacks that will go into effect in early 2023. The US Chamber warned that this “would distort the efficient movement of capital . . . and diminish the value of Americans’ retirement savings.”
In addition, business groups — particularly lobbyists from big drug companies — resented separate regulations that would allow the government to negotiate the prices of certain drugs for seniors. “Today’s vote may feel like a political victory for Democrats, but it is truly a tragic loss for patients,” said Stephen Ubl, president of Pharmaceutical Research and Manufacturers of America.
Tensions over Biden’s bill are flaring up in the context of an otherwise strained relationship between the White House and American businesses. Big companies rejoiced last November’s bipartisan legislation to boost infrastructure spending and a bill stimulating semiconductor manufacturing, agreed last month and set to be signed by Biden this week.
But Biden, who often draws on his working-class roots from growing up in Scranton, Pennsylvania, has been one of the most pro-union Democratic presidents in recent memory. Meanwhile, the heads of finance and antitrust he appointed have taken a far more aggressive stance than business would like.
Democrats have traditionally had a more difficult relationship with American business than Republicans. However, this dynamic has been tarnished since Trump’s presidency, as conservative lawmakers took more populist positions on trade and immigration while attacking corporations for being overly liberal on social issues.
Arshi Siddiqui, a former Democratic congressional aide and now a partner at Akin Gump, said the legislation has “stated a balance” between the concerns of the business community and Democrats’ priorities and should not result in a profound rift.
“In this time more than ever, business and administration must have an intensive dialogue and work together because the economic goals are the same – it’s just a question of how to get there,” she said.
Ahead of the vote, a few individual companies supported the bill, including Ford, Lyft and Levi Strauss — as well as US units of BP, Shell, Unilever and Danone.
As we head into the midterm elections in November, however, a big question is whether the climate and tax bills can persuade executives and lobbyists to back Republicans over even moderate Democrats who voted in favor of the law.
The chamber’s letter to senators on Friday included a warning that it would take note of whether or not they supported the bill in the “How They Voted” scorecard, which it uses to assess members of Congress’ business friendliness.
“The Chamber is not a one-issue organization – we take care of many different processes, [but] We definitely cared about that bill,” Bradley said.
Important climate measures in the draft law
Methane Penalty: $900 per tonne of methane emissions exceeding federal limits in 2024, increasing to $1,500 per tonne in 2026
$85 per ton carbon capture and storage tax credit instead of $50
$30 billion for solar panels, wind turbines, batteries, geothermal plants and advanced nuclear reactors, including 10-year tax credits. Replaces short-term wind and solar loans
$27 billion for a “green bank” to support clean energy projects, particularly in disadvantaged communities.
$20 billion to reduce emissions in the agricultural sector
$9 billion in rebates for Americans who buy homes and retrofit them with energy efficient and electrical appliances.
$60 billion to support low-income and communities of color, including grants for zero-emission technologies and vehicles, reducing pollution on highways, bus depots and other infrastructure near disadvantaged communities
$10 billion in tax credits for investments to build manufacturing facilities that produce electric vehicles and renewable energy technologies
Up to a $7,500 tax credit for new clean vehicle purchases and, for the first time, a $4,000 used electric vehicle credit for households with a maximum annual income of $150,000
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