Corporate profits

Elizabeth Warren’s new real corporate income tax

Many large, successful businesses pay surprisingly little corporate income tax, including the infamous case of Amazon paying $ 0 tax last year.

The feeling that businesses are not paying their fair share of the nation’s tax burden is a perennial complaint in opinion polls and today Elizabeth Warren is launching a new proposal to do something – she calls it “tax on the real profits of companies “. although tax nerds may see it as akin to the alternative minimum tax that is levied on certain individuals.

In particular, Warren wants to target the fact that many companies with little or no taxable income nonetheless report large profits on the tax returns they send to investors. They have a set of books that they show the IRS and one that they show on Wall Street. It’s not accounting fraud or anything, it’s just that the corporate tax code is complicated and there are a number of loopholes and deductions and things that businesses take advantage of. other creative tactics to minimize their tax bills.

Warren’s plan is to get the tax code to treat reported profits seriously – and levy a 7 percent tax on them.

How Warren’s True Business Tax Plan Works

Currently, companies record their taxable income and then pay corporation tax at a rate of 21%.

Warren wants to leave this system in place for the first $ 100 million of any company’s profits reported to investors. But for companies with more $ 100 million in profit (that’s about 1,200 companies), a second system kicks in. For every dollar of profit over $ 100 million that you report, you have to pay 7% tax. .

Last year, Amazon grossed over $ 10 billion in profits for investors, but paid $ 0 in corporate tax. According to Warren’s plan, they would instead pay around $ 698 million in taxes. His team released an analysis by economists Gabriel Zucman and Emannuel Saez that said it would bring in about $ 1.04 trillion over a 10-year period – essentially reversing the $ 1 trillion in corporate tax cuts Trump made. promulgated, but with the impact concentrated on a small number of highly profitable companies.

Will it crush the investment?

The argument against any kind of increase in revenue from the taxation of corporate profits is that these taxes discourage business investment.

People invest in order to reap profits, so when you tax the profits, you are actually taxing the investment. And in the long run, business investment should theoretically lead to more hiring, more productivity and higher wages. Indeed, one of the reasons the current corporate tax code is so convoluted is that it contains many provisions designed to encourage investment and offset any potential negative impact.

Imposing a new flat tax without deductions or distortions – even at a relatively low rate – would undo these efforts.

Now, of course, there are questions as to whether this theoretical link between taxes and investing is really valid. Empirical research has tended to cast some doubt on this, and the general conditions of the economy have changed a lot since the 1970s. We are now in an age where it is quite cheap and easy for businesses to lift. funds to invest when they want, and CEOs have failed to respond to Trump’s tax cuts by increasing investment levels.

Large business taxation, on the other hand, is very popular with the public, although closing loopholes and deductions is incredibly unpopular among K Street lobbyists.

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