US Treasury Prepares New Rules to Enforce 15% Corporate Tax

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Facts

  • The US Dept. of the Treasury released a new 603-page proposal on how it will enforce the 15% corporate alternative minimum tax (CAMT), which was passed by Congress as part of the 2022 Inflation Reduction Act.[1][2]
  • According to the Treasury Dept., the new rules will force roughly 100 companies—who it claims currently pay an average of 2.6%—to start paying the 15% minimum. It predicts this will garner $20B in tax revenue in 2025 and $250B over the next decade.[3]
  • While the Treasury Dept. didn't specify any of the 100 companies it plans to target, the CAMT established that companies with at least $1B in annual profits must pay the 15% minimum. This includes taxes on unrealized gains for some companies.[2]
  • The rulebook is mainly a collection of rules announced by the Treasury Dept. and Internal Revenue Service (IRS) since Dec. 2022 — including on how companies should report their taxable income and rules for us-based businesses with foreign parent companies.[3]
  • Given that companies must have a $1B profit average for three years, there are still questions surrounding how such income will be calculated. Other questions that need answers are how CAMT will deal with company mergers, splits, and those returning from bankruptcy.[2]

Sources: [1]Reuters, [2]Wsj and [3]Bloombergtax.

Narratives

  • Narrative A, as provided by U.S. Department of the Treasury. This rulebook is common sense, as the largest corporations in America not only play an average of 2.6%, but more than half of them pay less than 1%. The CAMT was passed with the goal of making the absolute richest companies pay their fair share — which is why it only applies to those with $1B in profits, not sales. While companies will have a chance to comment on the matter, this proposal should be accepted by anyone who prioritizes Main Street over Wall Street.
  • Narrative B, as provided by Manhattan Institute. America has been debating the same tax issues for decades, and as is always the case, higher taxes won't make a dent in the federal deficit. The US has higher income, capital gains, real estate, and inheritance taxes than the average OECD country, but the government spends too much on subsidized social programs to stay afloat. Even if a 100% income tax on billionaires was imposed and the corporate tax rate was increased, the debt would barely come down and the economy would crumble.

Predictions