It was a straightforward concept: Major U.S. corporations should pay a minimum of 15 percent tax on their earnings, putting an end to a period where some of the nation's most profitable companies owed little or no money to the federal government.
However, President Biden's advocated policy remains stuck in Washington due to increasing legal uncertainty and intense lobbying by companies that don't want to bear the cost.
Almost a year after its approval, the U.S. government has yet to fully implement the new corporate alternative minimum tax, as the Biden administration rushes to finalize a complex and crucial component of the Democrats' broader economic agenda. The fate of this tax rests with the Treasury Department, whose forthcoming regulations will determine if Biden can fulfill his promises of reducing the federal deficit and ensuring that businesses pay their fair share.
Jeffrey Hoopes, a tax professor at the University of North Carolina, who had previously cautioned Congress about the potential flaws in its vision, stated, "It's my belief that we will generate less revenue from this tax...than we initially anticipated."
Democratic lawmakers saw the new corporate minimum tax as a means to finance their flagship spending package, the Inflation Reduction Act, which included expensive new initiatives to combat climate change and lower healthcare costs. Party leaders specifically targeted a small group of companies that consistently reported enormous profits to shareholders but paid very little to the government each year.
In a fiscal evaluation of the policy, the nonpartisan Joint Committee on Taxation estimated last year that approximately 150 corporate taxpayers might be required to pay the new tax, projecting that it could generate over $222 billion in federal revenue over the next ten years. However, which companies will pay and how much money the government will collect depends on a range of unresolved legal issues stemming from hastily written legislation.
Meanwhile, major lobbying organizations representing companies such as AT&T, Amazon, Duke Energy, Ford, and FedEx have taken advantage of the uncertainty to push for changes that could reduce their tax burdens. Even a group representing gas utilities warned that they might raise prices for customers depending on how the administration implements the tax rules. (It's worth noting that Amazon founder Jeff Bezos owns The Washington Post, and interim Post CEO Patty Stonesifer sits on the company's board.)
These developments have raised concerns among some watchdogs that savvy corporations may end up paying significantly less than Biden intended, circumventing a policy explicitly designed to prevent profitable companies from evading taxes.
Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, a left-leaning organization, remarked, "These lobbying groups exist not to clarify tax laws but to reduce the tax liability of the companies they represent."
Two years earlier, the organization found that 55 companies—including Duke, Nike, steelmaker Nucor, and Salesforce—did not pay any taxes on their 2020 profits, a statistic that Biden frequently cited while advocating for a comprehensive overhaul. Although he initially aimed to raise the overall corporate rate to 28 percent from 21 percent, the president ultimately settled for a series of smaller policies targeting corporate profits.
Recently, some companies announced significant buybacks, prompting Biden to urge Congress to quadruple the tax to 4 percent.
The second component is the recently introduced 15 percent corporate minimum tax, which was initially advocated by lawmakers such as Senator Elizabeth Warren (D-Mass.) and draws inspiration from a similar initiative in the 1980s. President Biden has been vocal about his belief that it is unfair for businesses to exploit generous deductions in the current tax code, sometimes resulting in zero tax liabilities, while workers like teachers and firefighters end up paying more.
Under the current rules, companies that earn $1 billion or more annually, averaged over three years, are expected to pay this tax. Large corporations are required to calculate their normal tax payment after accounting for deductions that can reduce their tax bill. They must then perform an alternative calculation based on their financial statements, known as book income. Ultimately, they are obligated to pay the higher of the two amounts.
However, Congress left crucial details to be determined by the Treasury Department, which issued its initial guidelines last year. This document, which received little attention outside of corporate boardrooms and large accounting firms, indicated that the agency is still establishing the criteria for determining corporate income and deciding which policies in the complex corporate tax code should apply to the new system.
Deputy Treasury Secretary Wally Adeyemo stated, "We value stakeholder input as we've worked on this project, but we keep congressional intent as our guiding principle, with the aim of making the tax code fairer."
Due to the multitude of issues that need resolution, the IRS announced in June that companies are not expected to estimate and pay the new tax on a quarterly basis yet. Consequently, penalties will not be imposed on those who fail to do so. Tax experts consider this pause to be a common practice that highlights the complexity of the task at hand for the government.
Chye-Ching Huang, executive director of the Tax Law Center at NYU School of Law, commented, "There are advantages to the corporate alternative minimum tax, but no one can honestly claim that simplicity is one of them. Congress has left many difficult decisions for Treasury and the IRS to figure out."
Several companies, including Netflix, Salesforce, and Warner Bros. Discovery, have already informed investors that they are assessing whether they may face new federal tax obligations under the law. In February, insurer AIG warned that it might be required to pay the tax.
In an early attempt to identify potentially liable companies, Hoopes and researchers at UNC analyzed financial statements up to 2021, prior to the adoption of the Inflation Reduction Act. They found that 78 firms would have faced $31.8 billion in liabilities that year. This included Berkshire Hathaway, owned by Warren Buffett, which could have owed $8.3 billion in taxes under the law. Amazon would have had a bill of approximately $2.7 billion, Ford Motor Co. would have owed $1.8 billion, and AT&T might have had to pay $1.5 billion, according to the analysis released last September.
Hoopes cautioned that the study was only a projection since corporate tax filings are not public. Additionally, it relied on the assumption that Treasury might recognize gains and losses in the value of certain corporate assets and investments for tax purposes, even if they are not actually sold.
Like many aspects of the law, Congress left this matter somewhat ambiguous. However, Hoopes stated that the government has since indicated its reluctance to do so, which could limit the scope and potential revenue generation of the new tax.
"The majority of earnings reports I see state, 'We do not expect to be subject to this,'" Hoopes remarked.
At least one company, Berkshire Hathaway, later reported in its most recent earnings report that it does not anticipate a significant impact on its finances due to compliance with the provisions of the 2022 act. The company did not respond to a request for comment.
Under the current rules, companies that earn $1 billion or more annually, averaged over three years, are expected to pay this tax. Large corporations are required to calculate their normal tax payment after accounting for deductions that can reduce their tax bill. They must then perform an alternative calculation based on their financial statements, known as book income. Ultimately, they are obligated to pay the higher of the two amounts.
However, Congress left crucial details to be determined by the Treasury Department, which issued its initial guidelines last year. This document, which received little attention outside of corporate boardrooms and large accounting firms, indicated that the agency is still establishing the criteria for determining corporate income and deciding which policies in the complex corporate tax code should apply to the new system.
Deputy Treasury Secretary Wally Adeyemo stated, "We value stakeholder input as we've worked on this project, but we keep congressional intent as our guiding principle, with the aim of making the tax code fairer."
Due to the multitude of issues that need resolution, the IRS announced in June that companies are not expected to estimate and pay the new tax on a quarterly basis yet. Consequently, penalties will not be imposed on those who fail to do so. Tax experts consider this pause to be a common practice that highlights the complexity of the task at hand for the government.
Chye-Ching Huang, executive director of the Tax Law Center at NYU School of Law, commented, "There are advantages to the corporate alternative minimum tax, but no one can honestly claim that simplicity is one of them. Congress has left many difficult decisions for Treasury and the IRS to figure out."
Several companies, including Netflix, Salesforce, and Warner Bros. Discovery, have already informed investors that they are assessing whether they may face new federal tax obligations under the law. In February, insurer AIG warned that it might be required to pay the tax.
In an early attempt to identify potentially liable companies, Hoopes and researchers at UNC analyzed financial statements up to 2021, prior to the adoption of the Inflation Reduction Act. They found that 78 firms would have faced $31.8 billion in liabilities that year. This included Berkshire Hathaway, owned by Warren Buffett, which could have owed $8.3 billion in taxes under the law. Amazon would have had a bill of approximately $2.7 billion, Ford Motor Co. would have owed $1.8 billion, and AT&T might have had to pay $1.5 billion, according to the analysis released last September.
Hoopes cautioned that the study was only a projection since corporate tax filings are not public. Additionally, it relied on the assumption that Treasury might recognize gains and losses in the value of certain corporate assets and investments for tax purposes, even if they are not actually sold.
Like many aspects of the law, Congress left this matter somewhat ambiguous. However, Hoopes stated that the government has since indicated its reluctance to do so, which could limit the scope and potential revenue generation of the new tax.
"The majority of earnings reports I see state, 'We do not expect to be subject to this,'" Hoopes remarked.
At least one company, Berkshire Hathaway, later reported in its most recent earnings report that it does not anticipate a significant impact on its finances due to compliance with the provisions of the 2022 act. The company did not respond to a request for comment.
For the Treasury Department, the financial stakes are significant, as Democrats designed the tax as a means to ensure that the Inflation Reduction Act decreases the deficit. However, since its implementation, federal budget watchdogs have projected that its cost could potentially rise to as much as $660 billion, which is over 60 percent higher than initial estimates, according to the JCT.
The increase is largely due to higher-than-anticipated demand for clean energy tax credits, including those that incentivize consumers to purchase electric vehicles. Congress also included a series of exemptions that allow companies to use certain research and investment expenses to offset their taxes, mirroring the existing code in a way that could reduce corporate tax bills.
Lawmakers also agreed to protect entire industries, such as real estate conglomerates and wealthy private-equity firms, from the new tax. Sen. Kyrsten Sinema (Ariz.), who now identifies as an independent but caucuses with Democrats, advocated for safeguarding private equity as part of a last-minute deal to secure her crucial vote.
“There were various other adjustments that were made... that made this tax increasingly resemble the regular corporate tax,” said Will McBride, the vice president of federal tax and economic policy at the Tax Foundation, a right-leaning organization. He stated that this threatened to decrease revenue and raised the possibility that taxpayers could ultimately face “an effective tax rate that’s lower than the statutory tax rate.”
In recent months, some corporations have shifted their lobbying efforts to the Treasury Department, urging the agency to take a lenient approach or risk potential harm to economic growth.
“There are reasons and incentives that Congress provided businesses to do certain beneficial things in the economy,” said Lara Muldoon, the senior director for government affairs at the Information Technology Industry Council, a trade group representing Amazon, Facebook, Google, and other technology giants.
In comments submitted to the agency this spring, a wide range of corporate lobbyists — including ITI, the Business Roundtable, and the Alliance for Competitive Taxation (ACT), which represents companies like Google, Home Depot, and Walmart — advocated for permissive rules that mirror many aspects of the current tax system. They essentially sought permission to utilize a broader range of business expenses as offsets to their income and called on the government not to subject some of their investments to new taxes.
“We want to ensure that for items that have an impact in pre-IRA years... you are not penalized for them because you made decisions before anyone ever thought a book tax would be implemented,” said Chris Netram, the head of policy at the National Association of Manufacturers, whose leadership includes executives from Caterpillar, Dow, ExxonMobile, Johnson & Johnson, and other major companies.
The Business Roundtable declined to comment, and ACT did not respond to a request.
The American Gas Association, which represents utilities, sought to guarantee that the minimum tax allowed companies to take a series of deductions under the existing tax code that benefit the construction and repair of their facilities. The group stated that these deductions “provide a substantial benefit to the customers of their companies” and warned that failure to incorporate them “will void this customer benefit and result in substantial increases to customer rates.” The group did not respond to a request for comment.
As the Biden administration formulates its rules, some opponents have also reengaged with the issue on Capitol Hill, according to two anonymous congressional Democratic aides. For example, oil companies have sought special treatment for new drilling costs under the minimum tax, even though the Inflation Reduction Act aimed to decrease the country’s reliance on fossil fuels.
The increase is largely due to higher-than-anticipated demand for clean energy tax credits, including those that incentivize consumers to purchase electric vehicles. Congress also included a series of exemptions that allow companies to use certain research and investment expenses to offset their taxes, mirroring the existing code in a way that could reduce corporate tax bills.
Lawmakers also agreed to protect entire industries, such as real estate conglomerates and wealthy private-equity firms, from the new tax. Sen. Kyrsten Sinema (Ariz.), who now identifies as an independent but caucuses with Democrats, advocated for safeguarding private equity as part of a last-minute deal to secure her crucial vote.
“There were various other adjustments that were made... that made this tax increasingly resemble the regular corporate tax,” said Will McBride, the vice president of federal tax and economic policy at the Tax Foundation, a right-leaning organization. He stated that this threatened to decrease revenue and raised the possibility that taxpayers could ultimately face “an effective tax rate that’s lower than the statutory tax rate.”
In recent months, some corporations have shifted their lobbying efforts to the Treasury Department, urging the agency to take a lenient approach or risk potential harm to economic growth.
“There are reasons and incentives that Congress provided businesses to do certain beneficial things in the economy,” said Lara Muldoon, the senior director for government affairs at the Information Technology Industry Council, a trade group representing Amazon, Facebook, Google, and other technology giants.
In comments submitted to the agency this spring, a wide range of corporate lobbyists — including ITI, the Business Roundtable, and the Alliance for Competitive Taxation (ACT), which represents companies like Google, Home Depot, and Walmart — advocated for permissive rules that mirror many aspects of the current tax system. They essentially sought permission to utilize a broader range of business expenses as offsets to their income and called on the government not to subject some of their investments to new taxes.
“We want to ensure that for items that have an impact in pre-IRA years... you are not penalized for them because you made decisions before anyone ever thought a book tax would be implemented,” said Chris Netram, the head of policy at the National Association of Manufacturers, whose leadership includes executives from Caterpillar, Dow, ExxonMobile, Johnson & Johnson, and other major companies.
The Business Roundtable declined to comment, and ACT did not respond to a request.
The American Gas Association, which represents utilities, sought to guarantee that the minimum tax allowed companies to take a series of deductions under the existing tax code that benefit the construction and repair of their facilities. The group stated that these deductions “provide a substantial benefit to the customers of their companies” and warned that failure to incorporate them “will void this customer benefit and result in substantial increases to customer rates.” The group did not respond to a request for comment.
As the Biden administration formulates its rules, some opponents have also reengaged with the issue on Capitol Hill, according to two anonymous congressional Democratic aides. For example, oil companies have sought special treatment for new drilling costs under the minimum tax, even though the Inflation Reduction Act aimed to decrease the country’s reliance on fossil fuels.
Democratic aides have reported that major private-equity firms, such as Blackstone and the Carlyle Group, have been aggressively lobbying lawmakers to avoid being taxed based on the gains and losses of unsold assets.
When approached for comment, Blackstone did not respond, while a spokesperson for Carlyle Group declined to comment. However, Blackstone's most recent earnings report mentioned that it expects to face a liability in 2023, and Carlyle stated in its annual report that the tax provisions outlined in the Inflation Reduction Act have not had a significant impact on its finances.
Despite intense corporate lobbying, experts believe that the Treasury will issue further guidance on the tax and its applicability before the year ends. Additionally, senior administration officials have promised to put an end to decades of corporate tax avoidance.
Lily Batchelder, the assistant treasury secretary for tax policy, emphasized the importance of these provisions in creating a fairer tax system during a speech in San Diego earlier this year. She stated, "By ensuring that large, profitable companies and high-income individuals pay their fair share through these provisions and others, we are improving our tax system and making it more equitable for ordinary Americans."
When approached for comment, Blackstone did not respond, while a spokesperson for Carlyle Group declined to comment. However, Blackstone's most recent earnings report mentioned that it expects to face a liability in 2023, and Carlyle stated in its annual report that the tax provisions outlined in the Inflation Reduction Act have not had a significant impact on its finances.
Despite intense corporate lobbying, experts believe that the Treasury will issue further guidance on the tax and its applicability before the year ends. Additionally, senior administration officials have promised to put an end to decades of corporate tax avoidance.
Lily Batchelder, the assistant treasury secretary for tax policy, emphasized the importance of these provisions in creating a fairer tax system during a speech in San Diego earlier this year. She stated, "By ensuring that large, profitable companies and high-income individuals pay their fair share through these provisions and others, we are improving our tax system and making it more equitable for ordinary Americans."