How The Inflation Reduction Act Aims To Close Tax Loopholes

Progressive Democrats have been grousing for what seems like eons about the fact that some of the nation’s wealthiest corporations avoid paying their fair share in taxes. With the approval of a $370 billion package for climate and healthcare, this weekend’s Senate move was a significant step closer to a resolution. It would have been almost completely paid for by large-scale tax hikes on large corporations.

The measure seeks to end a decades-long trend that saw some of the world’s most profitable companies find ways to shelter their profits from federal income taxation, often by accelerating depreciation, offshoring profits, awarding stock options to executives and maximizing tax credits. Inflation Reduction Act would make it mandatory for corporations earning at least $1 million in annual net income or profit to pay a 15% minimum corporate tax. This is calculated based upon the financial statements they provide to shareholders. Amazon’s annual net income was $33.4 billion. The provision would require Amazon to pay at most $5 billion in tax.

Although the proposed 15% rate of tax is lower than the 21% threshold established by Trump in 2019, loopholes and tax credits have enabled some of the most powerful corporations to pay much less in recent years. This makes the 15 percent floor more appealing for bill supporters.

Annual Tax Bill: $0.00

According to the Institute on Taxation and Economic Policy, at least 55 U.S. companies that are the most powerful paid no federal corporate tax on their 2020 profits. The list of tax-avoiding corporations includes some of the world’s most recognizable brands, such as Nike, Dish Network and FedEx. According to the report, 55 of these corporations could have paid $8.5 Billion in taxes based upon their 2020 income. However, they were instead awarded $3.5 Billion in tax rebates.

“The bottom line is that corporate tax cuts and corporate tax avoidance benefit high-income Americans and foreign investors, not working people in the United States,” ITEP’s Executive Director Amy Hanauer said in her testimony to the Senate Budget Committee in March 2021.

The Center for American Progress also found that 19 Fortune 100 companies paid very little to no taxes on 2021 earnings. Amazon, Exxon Mobil, AT&T, Bank of America, Ford and General Motors were among companies found to have paid 6% or less of their profits on taxes.

Inflation Reduction Act is set to be voted in the House next week. It would force billion-dollar companies to contribute at least 15% to new climate funding and health programs.

“For small business owners, it’s really about leveling the playing field,” says Rhett Buttle, senior advisor for Small Business for America’s Future, an advocacy organization. “Larger businesses have the ability to hire accountants and lawyers to work the tax system, essentially to get out of paying taxes. And so it really gives them a financial advantage over pricing, and small business owners don’t always have the ability to do that.”

The Meaning of It for Consumers

The proposed tax law doesn’t directly increase taxes for small businesses or households earning less than $400,000 but opponents claim it will burden large corporations, reduce economic growth and lower wages, and even eliminate jobs. The right-leaning Tax Foundation says that the 15% minimum corporate tax comes “at the expense of more investment, more job opportunities, and higher wages.” Sen. John Thune, a Republican from South Dakota, says the taxes would result in higher prices for consumers in nearly every income bracket.

Fox News reported last week that Sen. Joe Manchin (a West Virginia Democrat who sank portions of the spending bill almost eight months ago) said that taxes would not rise for ordinary Americans.

“How in the world can you be raising taxes when all we’re saying is the wealthiest corporations in America, 55 of them, pay zero to help this great country of ours to defend ourselves,” Manchin said.

The Senate passed the Inflation Reduction Act, which is intended to fund a wide range of energy and climate programs. It will help cut U.S. greenhouse gas emissions by 40% by 2020. It would reduce prescription drug costs and allow Medicare to directly negotiate drugmaker prices. The bill also caps the annual amount recipients have to pay out of their own pockets for drugs at $2,000.

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