While Republicans and Democrats may disagree on the best tax policies to create well-paying American jobs and sustainable economic growth, some are so bad they transcend partisan politics. The Democrats’ proposed tax on income from the financial statements of certain US corporations (the so-called “accounting minimum tax”) is one example. When Congress experimented with a minimum book tax in the late 1980s, the policy proved so flawed and unworkable that Republicans and Democrats rejected the tax after just three short years of legislation. Now is not the time to resurrect harmful policy that would hurt American manufacturers and supply chains, undermine essential research and development, and investment in renewable energy and other emerging technologies.
The minimum book tax included in the Build Back Better Act passed by the House is fundamentally flawed. It would impose a 15% minimum tax on U.S. businesses, but not on income they are required to report to the Internal Revenue Service (IRS) as taxable income. Instead, the tax would be levied on the companies report on income for financial statement purposes – known as accounting income – rejecting the tax code in favor of taxing companies on the basis accounting standards. These standards are determined without congressional input or oversight and may not reflect the economic cycle.
Because business investments are treated differently for accounting and tax purposes, the proposal would impose a particularly heavy tax on capital investments made by US manufacturers, energy companies and other big job creators. It would eliminate or drastically reduce the benefits of the very tax policies that Congress has spent decades crafting to encourage investment in American facilities and support American jobs. As the National Association of Manufacturers rightly highlighted“[I]imposing a tax on the books would not only undermine the recovery, but also make it harder to spend America’s next manufacturing dollar, which would negatively impact the growth of American manufacturing jobs that support the family. Taxation based on these differences between books and taxes would have a devastating impact on many businesses and sectors, including manufacturing, insurance, renewable energy, wireless, and projects relying on state and local funding.
The minimum book tax that was attempted in the late 1980s ultimately failed, with both parties acknowledging the policy was unworkable. As the then Democratic Ways and Means chairman noted, “When used for tax purposes, the concept of book income not only invites manipulation, but can lead to inequitable outcomes due to temporary differences between tax and accounting rules”.
The current proposal to delegate tax-writing authority from Congress to unelected boards, such as the Financial Accounting Standards Board, is also concerning. Rather than abdicate and outsource its responsibility to unelected members of a board of directors, Congress should continue to fulfill its constitutional obligations to the American people by retaining firm control of the tax-drafting process.
Even more alarming is that the current proposal, which targets hundreds of American businesses, millions of American jobs and a massive sliver of the American economy, is being pursued without even a hearing or markup by the tax writers of one or the other bedroom. As a result, unintended consequences are sure to follow, requiring exclusions beyond the one recently and hastily added for pension plans. Defining significant tax policies affecting all Americans requires a formal scoping process, as was done with the Tax Cuts and Jobs Act in 2017, to allow for varied input, instead of unilateral, partisan decision-making.
Congress must once again reject this misguided proposition. It would exacerbate supply chain disruptions, kill jobs and confuse income tax law with rules decisions made by unelected members of accounting boards. Instead, Congress must preserve its constitutional authority over the tax-drafting process and work together to strengthen job creation, economic growth, and opportunity in the United States.
Mike CrapoMichael (Mike) Dean CrapoThe Hill’s 12:30 p.m. Report: Lost dog follows senator around Capitol Hill Sanders calls on Democrats to bring drug pricing bill to Senate Congress should close the book on failure to the minimum tax on the book PLUS is a senior member of the Senate Finance Committee.