President Joe Biden experienced a dose of his own medicine shortly after Tesla CEO Elon Musk took control of Twitter. Biden never imagined he would be the one on the receiving end of the Democratic Party’s reliance on social media corporations for the dissemination of information.
Whether it was Biden or a member of his staff, stated , “Let me give you the facts. In 2020, 55 corporations made $40 billion. And they paid zero in federal taxes. My Inflation Reduction Act puts an end to this.”
Let me give you the facts.
— President Biden (@POTUS) October 29, 2022
In 2020, 55 corporations made $40 billion. And they paid zero in federal taxes.
My Inflation Reduction Act puts an end to this.
The information about this was then spewed out by Twitter. A minimum tax was imposed by the Inflation Reduction Act on businesses with average pre-tax earnings above $1 billion. Only 14 of the 55 firms mentioned in the tweet had earnings of more than $1 billion and qualified for the Biden tax law.
Under the minimum tax, some common corporate income tax credits and deductions, such as credits for overseas taxes paid, are still permitted.
It is also possible to carry forward losses from previous years to offset future income, but only 80% of those losses can be used to lower taxable income.
Additionally permitted are credits for R&D costs, with the corporation minimum tax being reduced by 75% of the total amount.
Legislators inserted a clause to retain deductions for capital investments including machinery, automobiles, and buildings at the request of Democratic Senator Kyrsten Sinema. The exception would make it possible for businesses to more rapidly deduct these costs from their tax obligations.
Another last-minute amendment Sinema proposed to the bill exempts companies controlled by private equity firms from the corporate minimum tax if their book of income is less than $1 billion, even if the whole portfolio of those investment firms’ companies exceeds the limit.
To avoid paying the minimum tax, certain private equity firms may be able to move assets across the businesses in their portfolios such that each earns less than the $1 billion level.
According to a recent note from law firm Baker Hostetler, book of income is computed using the income that businesses declare to shareholders, and the new tax may provide businesses with an incentive to reduce the book income they disclose.
They cited a report from the impartial Congressional Research Service as proof that previous attempts to tax corporations based on book income forced them to manage their revenues and alter book income to lower taxes.
