The tax—aimed at companies that report large profits to investors but low tax payments—would apply only to companies with income exceeding $2 billion, up from the $100 million threshold used during the campaign. The Biden plan would now also let companies subject to the tax get the benefit for tax credits for research, renewable energy and low-income housing.
The result is that just 180 companies would even meet the income threshold and just 45 would pay the tax, according to administration estimates that assume the rest of the administration’s plan gets implemented. Nearly U.S.-listed 1,100 companies would meet the $100 million threshold, according to S&P Global Market Intelligence.
The tax “is a targeted approach to ensure that the most aggressive tax avoiders are forced to bear meaningful tax liabilities,” the Treasury Department said in a new report.
The Treasury report outlines the arguments for the administration’s broader corporate tax agenda, which would raise more than $2 trillion over 15 years to pay for eight years of spending on roads, bridges, transit, broadband and other infrastructure projects.
That plan includes raising the corporate tax rate to 28% from 21% and changing several key features of the 2017 tax law.
Business groups object to the changes, contending that they would hurt investment and U.S. companies’ ability to compete for global business. The Treasury report contends that the 2017 tax cuts went too far and generated little economic benefit, pointing out that foreign investors received a significant share of any gains.
“It changes the game we play,” Treasury Secretary
said of the tax plan. “America will compete on our ability to produce talented workers, cutting-edge research and state-of-the-art infrastructure, not on whether we have lower tax rates than Bermuda or Switzerland.”
Ms. Yellen said the revenue generated from the tax changes would pay for investments that, by 2024, will add an extra 1.6% to the level of U.S. gross domestic product.
The administration also wants to impose a 21% minimum tax on U.S. companies’ foreign income and get other countries to do the same thing. To prod other countries to adopt such taxes, the new plan includes tough limits on deductions for foreign-headquartered companies from countries that don’t adopt them.
All of that is separate from the 15% minimum tax on U.S. companies’ financial-statement income.
The minimum tax on financial-statement income is a powerful political talking point, but the latest changes diminish its role in the Biden plan to more of a backstop than a key feature. Tax lawyers and accountants have argued that such a tax may be difficult to administer and implement and would cede some U.S. tax rules to accounting regulators.
There are a variety of reasons why large companies such as
can report significant profits and low tax liability.
Some stem from the differences between the definition of income for financial statements and the definition for taxes. Companies can, for example, immediately deduct many capital investments for tax purposes, but must depreciate them over time for investors. That can lead to lower tax payments in the short run and create a gap between tax income and book income.
Companies can also report tax bills below the statutory tax rate because of intentional tax breaks authorized by Congress. Those include the tax credits for research, housing and renewable energy that the Biden Treasury Department explicitly carved out of the new tax on Wednesday. That change would focus the tax on companies engaged in profit-shifting and not on activities that the government wants to encourage, Treasury Department officials said.
The tax on financial-statement income would also let companies claim foreign tax credits. They could also get credit if they paid taxes above the 15% threshold in prior years.
The report also offered more details on the administration’s plans to replace tax subsidies for fossil-fuel companies with new incentives for renewable energy investments.
The Biden proposal would extend the production and investment tax credits for clean-energy generation and storage for 10 years, the report said, and make those credits “direct pay,” essentially allowing businesses to collect them as cash. It would also create a new tax incentive for long-distance transmission lines and further expand tax incentives for electricity storage projects, which the Treasury said would help ensure the electricity supply is reliable and less harmful to the climate.
The plan would also extend a manufacturing tax credit for clean energy, known as the Section 48C program, and would include a “blender’s tax credit” for sustainable aviation fuel, facilitating a shift away from carbon in a key U.S. transportation sector, the report said.
The administration also plans to restore a tax on polluters to pay for cleanup costs at Superfund sites, polluted sites that the Treasury Department said also disproportionately affect communities of color.
The Treasury’s Office of Tax Analysis estimates that eliminating subsidies for fossil-fuel companies would increase government tax receipts by $35 billion over the coming decade, the report said, with the main impact on oil-and-gas company profits. The report also cited 2018 research suggesting removal of the subsidies would have little impact on gasoline or energy prices for consumers or on energy security.
Treasury officials said the plan would raise more revenue in the short-run because the clean-energy tax provisions wouldn’t continue as long as the corporate tax revenue increases.
—Theo Francis contributed to this article.
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