Biden’s new corporate tax hike won’t affect most US companies

Senate Majority Leader Chuck Schumer (D-NY) speaks during a press conference on the Inflation Reduction Act outside the US Capitol on August 4, 2022 in Washington, DC.

Drew Angerer | beautiful pictures

Business advocacy groups have campaigned vigorously against the 15% minimum tax on large corporations just passed by Congress as part of the Inflation Reduction Act, calling it “terrible policy.” “will reduce economic growth and make America “poorer”.

However, Wall Street analysts say the law will not significantly affect the company’s earnings or its future investments.

Manufacturing companies more than 1 billion dollars per year will now have to pay the minimum tax 15% as well as 1% on share buybacks. Those tax reforms, mainly targeted at the largest US corporations such as parent company Google Alphabet, JPMorgan Chase and parent company Facebook Metawill reduce the federal deficit by an estimated $300 billion over the next decade.

Wells Fargo analysts wrote in an August 9 research note that “generally not positive for stocks,” the 15% corporate tax rate would not be “important.” “.

Just over 170 companies in the S&P 500 paid less than 15% in taxes last year, according to a new analysis by Credit Suisse. Of those corporations, less than half are likely to experience a tax increase in 2023 as the law allows companies to use adjusted earnings, which can be adjusted in a number of ways, the analysis found. .

“Overall, the impacts could be a bit small overall, and at this point, it’s complicated to really understand,” Credit Suisse accounting strategist Ron Graziano said in an interview. “Could some companies be more affected than others? Possibly, yes. The overall impact is not material for large corporations.”

Senate Democrats passed bill 51-50 on August 7 without a single Republican “getting it” and Vice President Kamala Harris voted discord. House approved it 220-207 on Friday; President Joe Biden is expected to sign it into law on Tuesday.

“This act will eventually get the biggest corporations to start paying their fair share of taxes and – as our nation’s leading economists have confirmed – it will ease inflationary pressures in our economy.” us,” bill sponsor John Yarmuth, D-Ky., say after it’s over house.

House Minority Leader Kevin McCarthy, R-Calif., meanwhile accused Democrats on Twitter on Friday of jamming through a “700-page bill that raises your taxes and doubles the size” of the IRS.”

“87 days from now, the Democrats will have only themselves to blame…” McCarthy said, referring to the upcoming mid-November periods.

Catherine Schultz, vice president of tax and financial policy at the Business Roundtable, calls the 15% minimum corporate tax rate a “terrible policy.”

“What it really does is pick winners and losers in the tax system,” says Schultz, adding that the companies with the most compensation shares will experience significant effects.

“Businesses are not stagnant, they are dynamic and make different investment decisions on a daily basis,” says Schultz. The minimum tax rate “could affect how companies determine how they will make certain investments in the future.”

“Companies may not be willing to take certain risks in their investments, if that could add additional returns to their tax bills,” says Schultz.

The National Association of Manufacturers “remains firmly opposed to IRAs,” president and chief executive Jay Timmons said in a statement. statement. “It raises taxes on U.S. manufacturers, weakening our competitiveness while we are facing severe economic headwinds such as supply chain disruptions and high rates of loss,” he said. The highest inflation rate in decades.

Akash Chougule, a lobbyist at The Koch familyAmericans Lead for Prosperity, said “Abandoned Americans are worse” while some “pocketed” and lawmakers vowed to win. “Ultimately, this is the same story – hundreds of billions of dollars in tax increases and corporate benefits sold as solutions to our most pressing crisis,” he said.

Neil Bradley, executive vice president and head of policy delivery at the American Chamber of Commerce, indicate the minimum tax rate would make America “poorer” and reduce “future economic growth.” He added that a 1% excise tax on stock buybacks would “distort the efficient movement of capital” and “decrease the value of Americans’ retirement savings.”

A volunteer holds a banner during a press conference on the climate crisis and the Inflation Reduction Act at the US Capitol in Washington, DC, August 12, 2022.

Kevin Lamarque | Reuters

S&P 500 companies bought back a record $881.7 billion in shares last year as historically low interest rates boosted profits and valuations. However, this practice only benefits investors if the company reduces the number of shares outstanding, which increases earnings per share. Usually, however, the acquisition serves to increase the salary of executives.

Analysts at Washington-based Cowen Research Group claim that 1% excise tax will not change repurchase behavior.

Credit Suisse agrees that taxes are not high enough to influence capital deployment decisions – “especially for companies with strong balance sheets and attractive valuations.”

Graziano said time will tell with reference to the overall effects of the law.

“All taxes are complex. This is a new tax based on adjusted financial income. This is the first time this has been done,” he said. “The way they go about it can be a lot different than planned. That’s nothing new, it happens all the time in all tax terms.”

David French, Senior Vice President of Government Relations for the National Retail Federation, says that while raising taxes in a weakening economy is a “concern”, the minimum tax is fairer and “takes precedence over increasing tax rates.”

“Retailers are generally unaffected by the company’s new minimum tax proposal, because most retail companies are already paying at an effective rate well above 15%,” French said in a statement. a statement to CNBC.

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