WASHINGTON—President Biden’s talking points on corporate taxes often revolve around a list of 55 profitable U.S. companies that didn’t pay income taxes in 2020.
“Not a penny,” he said Sept. 16. “That’s not right. And my economic plan will change that.”
That appears unlikely.
The...
WASHINGTON—President Biden’s talking points on corporate taxes often revolve around a list of 55 profitable U.S. companies that didn’t pay income taxes in 2020.
“Not a penny,” he said Sept. 16. “That’s not right. And my economic plan will change that.”
That appears unlikely.
The Democratic proposal approved this month by the House Ways and Means Committee would sharply raise taxes on U.S. corporations, and business groups are working hard to defeat it. The legislation would increase the top corporate tax rate to 26.5% from 21% and remove many benefits of booking profits in low-tax foreign countries. That resulting revenue—about $1 trillion over a decade—would help pay for Democratic policy priorities including an expanded child tax credit and a paid-leave program.
The bill, however, doesn’t touch the main reasons why profitable companies sometimes don’t pay taxes, including accelerated depreciation of investments and tax credits for activities such as research and development. The bill does strengthen a minimum tax on U.S. companies’ foreign profits, but it doesn’t include the separate minimum tax that Mr. Biden proposed to limit the number of zero-tax companies.
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The legislation also expands tax credits for clean energy and low-income housing in ways that could push some companies from paying little to paying nothing.
“Corporations that don’t pay any taxes are still going to be able to go on paying no taxes, and in some ways they may even get a bigger refund,” said Frank Clemente, executive director of Americans for Tax Fairness, a progressive group that advocates higher taxes. “It is remarkable that there is no talk about this in Congress.”
Mr. Clemente said the Biden corporate-tax pitch—stop profitable companies from paying nothing—was the highest-polling tax-policy idea in his group’s surveys.
The bill moving through Congress represents an explicit choice by Democrats to tolerate some zero-tax companies and steer tax advantages to companies that engage in favored activities.
“The House’s plan ensures big corporations and high-income individuals pay their fair share without stifling job creation or innovation,” said Dylan Opalich, a spokeswoman for Democrats on the House Ways and Means Committee. “It’s a balanced approach that raises the corporate rate and strengthens international tax provisions while encouraging domestic job growth and greater investment in green energy.”
The Democrats’ plan to pay for President Biden’s $3.5 trillion Build Back Better initiative will need to strike the right balance to appeal to progressives without alienating moderates. WSJ’s Gerald F. Seib discusses with tax policy reporter Richard Rubin. Photo illustration: Todd Johnson The Wall Street Journal Interactive Edition
David Kamin, deputy director of the White House National Economic Council, said the committee’s bill marked a step toward raising taxes on companies that often pay little or nothing.
“These reforms, as is reflected, frankly, by the lobbying effort that multinationals right now have engaged in, [do] change that,” he said.
Corporate taxes are complex, and there is no perfect, publicly available measure of what individual companies actually pay the U.S. government for each tax year. Financial statements can give close approximations, and no-tax companies are an easy-to-grasp idea for the general public.
Mr. Biden’s often-cited list of 55 companies comes from the Institute on Taxation and Economic Policy, or ITEP, a progressive group that publishes a regular report on the zero-tax-company phenomenon. This year’s list included companies such as VeriSign Inc., Sealed Air Corp. and DTE Energy Co. Amazon.com Inc., often the political poster child for light corporate-tax burdens, was included in past years.
To find no-tax companies, ITEP looks at companies’ annual income statements to see which ones show no current U.S. tax expense. That approach highlights low-tax and no-tax companies, often because of the gaps between the definitions of income for accounting and tax purposes.
Companies depreciate investments immediately for tax purposes but over time for financial statements. That leads to large tax deductions now that can eliminate their current tax costs. Then, in future years, they would deduct expenses from their financial-statement income but not from their taxes.
The numbers can be confusing and confounding. Sealed Air, which makes packaging, reported a 22.7% global tax rate for 2020 and $102 million in global cash tax payments. But its current U.S. tax expense was negative $14.2 million, driven in part by $27.8 million in tax credits and $59.4 million in deferred federal tax costs. The higher tax rate proposed by Democrats might drive up the company’s tax rate, but that wouldn’t guarantee that it pays the U.S. anything.
“This is always a way in which Democratic Party tax policy works,” said Kyle Pomerleau, a senior fellow at the conservative-leaning American Enterprise Institute. “The corporate tax rate may be going up, but there are aspects of the tax base that may be shrinking.”
ITEP’s analyses have spurred some Democrats, including Mr. Biden, to call for a minimum tax on income as reported on financial statements. Many tax experts warned that doing so would effectively hand the definition of the tax base from Congress to the Financial Accounting Standards Board, which sets U.S. generally accepted accounting principles used for companies’ public reporting. The Ways and Means Committee chose not to adopt it.
Matt Gardner, a senior fellow at ITEP, said the report has always been meant to provide high-profile examples of low corporate-tax payments that highlight broader trends in corporate tax burdens. Eliminating zero-tax companies shouldn’t be the primary policy aim, he said.
“Is there anything in this bill that would stop companies from paying zero? I don’t think so,” said Mr. Gardner, who praised the Ways and Means bill’s international tax provisions. “But I don’t think that was ever the real problem. The real problem is the much broader array of companies paying low but positive tax rates.”
Sen. Elizabeth Warren (D., Mass.) who backs a 7% minimum tax on large, profitable companies, said the House bill didn’t go far enough. Ms. Warren said her plan could raise $700 billion and that she was still pushing to include a version of that idea as the House, Senate and White House iron out the details.
“The fact that it would raise so much money tells you how broken our current tax system is,” she said.
Write to Richard Rubin at richard.rubin@wsj.com
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