Democrats said that their plan for a 15% corporate minimum tax would not be as detrimental to U.S. manufacturers as Republicans have alleged.
Last week, centrist Sen. Joe Manchin (D-WV) signed on to the Democratic healthcare, tax, and climate reconciliation proposal, dubbed the Inflation Reduction Act of 2022. The most notable tax provision in the legislation is a 15% minimum tax on the book income of companies, something that Republicans quickly claimed would hurt domestic manufacturers.
An analysis from the nonpartisan Joint Committee on Taxation requested by Republicans found that nearly 50% of the tax would be borne by the manufacturing industry, a projection the GOP said would hurt manufacturers at a time when they are particularly vulnerable because of inflation, supply chain issues, and a potential recession.
But the Democrats are now lobbing back with their own JCT analysis. They said on Tuesday that about half of the 15% corporate minimum tax paid by manufacturers under the proposal would be borne by “well-known tax dodgers” in the tech, apparel, and pharmaceutical industries. Sens. Ron Wyden (D-OR) and Elizabeth Warren (D-MA) said in a news release that 97% of clothing sold stateside was produced in factories overseas.
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“These companies are playing the most games, and avoiding tax by manufacturing their drugs, phones, and shoes abroad. This is a minimum tax for tax dodgers stamping ‘Made in China’ on their products,” said Wyden.
Warren said that about 200 of the biggest and most profitable corporations ship jobs overseas while “paying a lower tax rate than most businesses and workers.”
“Republican politicians and their corporate lobbyist friends are rushing to defend tax loopholes for billionaire corporations, while Democrats are working to invest in manufacturing clean energy technology and lower costs for working families,” she said in a statement.
The United States currently has a 21% corporate tax rate, which it assesses based on companies’ tax returns. The new proposal would assess a minimum 15% tax on the adjusted financial statement income of corporations — “book income.” Democrats say the provision will raise $313 billion in new tax revenue.
Still, the GOP believes that corporate minimum tax would be bad for the economy at a time when it’s already in a precarious position.
“This supplementary analysis shows that not only would this tax hit the American manufacturing sector hard, but it will hit all sorts of industries within that sector, not to mention the companies outside of manufacturing,” a Republican aide told the Washington Examiner in reference to the Democrats’ JCT scoring.
Sen. Mike Crapo (R-ID) called the plan a “fundamentally flawed proposal” and attacked the legislation for its outsize effect on the manufacturing industry.
“This is a domestic manufacturing tax, plain and simple,” he said. “Now is not the time to resurrect a harmful policy that would overwhelmingly hit American manufacturers and supply chains, as well as undercut critical research and development and investment in emerging technologies.”
Jay Timmons, the president and CEO of the National Association of Manufacturers, said in a statement opposing the legislation that lawmakers should firmly vote against the bill in its current iteration.
“It is especially harmful because it will undermine manufacturers’ competitiveness at a time when the industry is reeling from supply chain disruptions and record inflation,” Timmons said. “Lawmakers who support manufacturing in America should oppose this reconciliation bill. It will make manufacturing less competitive and America economically weaker.”
Republicans have also seized on a JCT analysis that found that because of increased taxes on corporations, people in every tax bracket would suffer losses. The overall tax burden for those earning less than $200,000 annually would increase by $16.7 billion in 2023, according to the analysis requested by the GOP.
The burden comes because people and families earning less than $400,000, the group President Joe Biden pledged to spare from tax hikes, who have investments in corporate stocks will see those stocks become worth less after the new book tax is imposed, Garrett Watson, a senior policy analyst at the Tax Foundation, told the Washington Examiner on Monday.
“This would reduce the return on those equities and reduce after-tax incomes for those households,” Watson said. “That’s nearly as direct as an income tax hike. There are other indirect impacts, of course, including a negative impact on worker wages over the long run due to the book minimum tax.”
Democrats and the White House have pushed back on that assertion and said the JCT report requested by Republicans doesn’t include a calculation of the effects of Obamacare tax credits, prescription drug savings, and clean energy tax credits.
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“It is incomplete,” press secretary Karine Jean-Pierre said of the analysis on Monday. “The JCT report that we’re currently seeing is incomplete because it omits the actual benefits that Americans would receive when it comes to prescription drugs, when it comes to lowering energy costs like utility bills. It does not include that, and we have some experts.”
In addition to the book tax, the Democratic reconciliation bill envisions raising taxes on carried interest, a form of income earned by private equity funds that is subject to a lower tax rate. That mechanism is projected to net $14 billion, while the Congressional Budget Office predicts that a plan to bolster IRS tax enforcement will bring in $124 billion in increased revenue.
