Who is affected by the minimum book tax?



The current version of the reconciliation bill, the Build Back Better Act, attempts to meet a (politically imposed) fine: raising hundreds of billions of dollars in higher corporate taxes without raising the corporate tax rate. companies. The centerpiece of this effort is the accounting minimum tax, a new alternative minimum tax applied to financial statement income (that is, accounting income) that companies report to their investors.

Recent analyzes by the Tax Foundation have examined some of the problems created by the proposed minimum tax structure. But in addition to these problems, it will have disproportionate effects on specific industries, including its ineffectiveness as a stable source of income, its distorting effects on investment, and seemingly unintended penalties for various company-specific expenses. and industry, ranging from frequency leases to pensions. plans. As such, it is important to understand how the minimum tax on books would impact different industries.

By using data from Compustat’s financial statements on state-owned enterprises and incorporating the interim results of the Multinational Tax Foundation’s tax model, we are able to identify the different effects of the accounting minimum tax on industry and ” refine our previous estimate of the overall impact.

While the book tax itself raises hundreds of billions of dollars over the 10-year budget window, a substantial portion of that revenue is offset by the previous year’s minimum tax credit (for tax on previous books, which can be used to reduce ordinary corporate income tax liabilities). On the net, the minimum accounting tax increases corporate tax obligations by $ 219.4 billion relative to the budget window, although some of this income is offset by the reduction in capital gains income. and taxes on dividends paid by the owners of these companies.

However, the weight of this tax is not distributed evenly between industries. Table 1 shows the net tax levied on 30 industries, both in dollars and as a percentage of the total pre-tax business income required to calculate the tax.

Net tax increases by industry from minimum book tax to better rebuild over budget window
Industry millions of dollars % of income
Coal 60 7.2
Automobiles and trucks 10 817 5.1
Utilities 43 348 4.4
Everything else 32,291 3.9
Construction and building materials 2,865 3.4
Tobacco products 12,017 2.5
Recreation 991 2.3
Printing and Editing 353 2.3
Communication 30,581 2.3
Beer & Liquor 3,780 2.2
Wholesale 3,241 2
Transport 11 019 1.7
Health, medical equipment, pharmaceuticals 11.129 1
Textiles 44 0.9
Steel work, etc. 91 0.8
Bank, insurance, real estate, commerce 24,278 0.8
Office equipment 12,368 0.7
Manufactured products and machines 1,552 0.6
Oil and natural gas 9,250 0.6
Foodstuffs 1,833 0.4
Aircraft, ships and railway equipment 1,161 0.4
Commercial supplies and shipping containers 407 0.3
Retail 3,743 0.3
Clothes 74 0.1
Services to individuals and businesses 1914 0.1
Restaurants, hotels, motels 81 0
Chemical products 57 0
Consumer goods 49 0
Electrical equipment 0 0
Precious, non-metallic and industrial metal mining 0 0
Total 219,394 1.3

Source: author’s calculations.

Notes: Industry classifications follow the Fama-French 30 industry classification system. The first column displays the net tax increase in the industry, as an accounting minimum tax liability less minimum tax credits from the previous year. The second column presents the net tax increase as a percentage of the total pre-tax income of the companies concerned. According to the legal definition of the proposed minimum tax, a business is considered to be taxed if the average of its adjusted income in its financial statements over the previous three years exceeds $ 1 billion; once the business is affected by the tax, it remains so for all subsequent years. The minimum accounting tax calculations are stacked on top of the international tax changes in the Build Back Better Act.

As a proportion of its income, the coal industry faces the heaviest burden of accounting minimum tax, facing a net tax increase of 7.2% of its pre-tax accounting income, followed by the manufacturing of cars and trucks, which faces a 5.1% tax increase. In dollar terms, the industries that would represent the largest accounting minimum tax liability are utilities, at $ 43.3 billion, followed by communications at $ 30.6 billion.

These industries are all the more impacted because they are located at the intersection of the different accounting tax differences targeted by the minimum tax on books: permanent differences between the two measures of low-tax companies (targeted target); temporary discrepancies between the financial result and the tax result; deliberate tax incentives created by Congress (eg, depreciation of bonuses); and special items that appear in one definition of income but not the other, such as amortization of spectrum investments or mark-to-market pensions.

Minimum book tax affects industries in very different ways, some of which may be unintentional, reflecting a tax proposal that has not been fully approved. Before introducing a new accounting income tax and asking the IRS to administer it and taxpayers to comply with it, lawmakers should consider whether these disparate impacts by industry are consistent with their policy goals. fiscal.

December 17 update: An updated version of the Build Back Better plan amends the minimum accounting tax to exempt accounting adjustments for mark-to-market pension plans. The above analysis refers to the House Build Back Better Act originally passed on November 19.

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