The Biden administration is pushing back against a much-touted Democratic “corporate minimum tax,” and the administration will win. That’s because, for Washington Democrats, the purpose of the tax code is to exert influence over businesses and extract favors from lobbyists.
To be fair, Republican politicians appreciate those aspects of the tax code too. And the “corporate minimum tax” defeats this purpose.
The corporate minimum tax is an idea hatched by taxing authorities around the country in an effort to “level the playing field” and avoid tax competition. It’s the corporate equivalent of the alternative minimum tax: Corporations would calculate their taxes as normal, but no matter what, they would pay a federal corporate tax bill equivalent to at least 15% of their “book income.” It’s a blunt attempt at making sure corporations “pay their fair share.”
The idea of companies paying their fair share is a complex one, but these attempts at patches are all policy spasms reacting to the fact that a complex tax code lays a road map for large corporations with a thousand tax attorneys to find their way to low or zero taxes.
So how do corporations work their taxes so low? Largely it’s the complexity of the tax code.
Why is the tax code so complex? Part of the reason is the complexity of the idea of “profit.” But a huge part of the problem is that politicians create a million carveouts, credits, and deductions for behaviors they want to encourage. The tax code is a gentle way to influence business activity.
Democrats have one expressed desire: Make sure every corporation pays at least its fair share. They have another actualized desire: Let us use the tax code to control how corporations invest their capital. These two ideals are at odds.
Earlier this month, the Washington Post reported that “officials in the Treasury Department’s Office of Tax Policy raised concerns internally in recent weeks that the new 15% minimum tax could lead to unintended consequences — such as limiting clean energy investment.”
There you have it. Democrats have rigged the tax code to subsidize “clean energy investment,” and a tax code that simply says “you pay taxes on your profits” would necessarily zero out those special-interest tax breaks.
