Former Vice President Joe Biden, the presumptive Democratic nominee for president, has yet to release a formal tax plan. (AP)
"We just don't know how Biden would structure this minimum tax," said Kyle Pomerleau, a resident fellow at the American Enterprise Institute, a right-leaning research group. "We don't know what the base of it would be; I think that has some pretty big implications for the revenue effect."
The institute estimated that the proposal would raise $160 billion from 2021 to 2030, the smallest of the four estimates.
Biden, the presumptive Democratic nominee for president, has yet to release a formal tax plan, forcing estimators to draw assumptions from public statements, the few details contained in his platform and other reports from campaign leaks.
But the proposal conforms with a theme that has been central to his campaign since its inception — anger at large companies, especially in the tech sector, for supposedly using loopholes to avoid paying the appropriate amount of tax.
"I don't think any company, I don't give a damn how big they are, should absolutely be in a position where they pay no tax and make billions and billions and billions of dollars," Biden told a CNBC interviewer in May.
Biden's comments followed reports that Amazon.com Inc., among others, reported no tax obligations to its shareholders despite significant profits.
Under his proposal, companies paying no income tax would face a 15% tax on their worldwide income, based on financial accounting information such as public filings to shareholders. The tax would work similar to the alternative minimum tax, which applied to corporations until the 2017 tax overhaul, although few actually paid it.
Sen. Elizabeth Warren, D-Mass., a former rival to Biden for the Democratic nomination, had also proposed a more aggressive form of the tax based on the same concept.
Advocates say that corporations are less likely to reduce earnings in their financial statements, which investors use to evaluate the market. And they lack the preferences and deductions that Congress has added to the tax code over time, often exempting income through supposed loopholes.
But the different cost estimates show the degree to which Congress would need to consider new questions about the tax base to establish a book minimum tax.
Aside from the American Enterprise Institute's estimate, the Tax Policy Center, a research group run jointly by the Urban Institute and the Brookings Institution, both left-leaning, estimated $166 billion over 10 years. The Penn Wharton Budget Model estimated $227 billion, and the Tax Foundation, a conservative-leaning group, estimated $318 billion.
One issue that Congress would need to consider is whether the book minimum tax would include credits for expenses incurred in a given year. Companies can receive immediate deductions for many expenses, but those costs must be allocated throughout the investment's lifespan in basic accounting. Because a company could lose both its initial deduction and the ability to account for the cost in later years under the dual system, past alternative minimum taxes have included a credit for differences between financial accounting income and taxable income that are due only to timing.
That credit could smooth out perceived discrepancies in the system, but it could also negate some of the original purpose of the corporate minimum tax. A significant reason that free-spending companies like Amazon have been assessed lower tax payments in recent years is their ability to immediately expense most costs. Giving them credits due to alternative minimum tax payments would call into question why it is necessary.
Likewise, while critics have highlighted breaks and incentives in the current tax code, there are also many deductions that are disallowed as well, but would be included in financial statements. Since the 2017 Tax Cuts and Jobs Act
passed, top executive pay is nondeductible, but that is considered a legitimate expense for book income. If Congress considered tweaking those rules, it would undermine the goal of a tax system free from political influence."Normally, we think of book income having a broader tax base, but there are cases where book income has a narrower tax base," Pomerleau said.
One of the biggest questions surrounding a book minimum tax is how it would affect future taxpayer behavior, which would then strongly influence the revenue windfall.
"Predictions about future taxable income and future book income are quite imprecise," said Mark Mazur, director of the Urban-Brookings Tax Policy Center. "Revenue estimators would want to take into account potential taxpayer behavior that could try to minimize future tax liability, and there surely would be no consensus on that."
For instance, while companies may have less ability and incentive to reduce earnings in financial statements, there is some evidence that earnings did decline during three years following the 1986 tax overhaul in which the alternative corporate minimum tax took book income into account.
Another potential unknown factor is how many companies would fall under the minimum tax. Because tax return data is private, estimators are forced to use information in financial statements about tax liability, which offers a less complete picture. Without that data, analysts can't be sure how many companies would see tax bills low enough that the minimum tax would apply to them.
"The measure of tax income in the financial data are somewhat different from what you would get if you were looking at actual tax data," said Thornton Matheson, a senior fellow at the Tax Policy Center involved with the estimate.
Other differences relate less to the policy itself than to how estimators prepare the budget scores, such as the policy's interaction with other Biden's campaign proposals.
Even as it has found its way to the center of the Democratic agenda, the corporate minimum tax remains a controversial proposal among tax experts, many of them questioning whether it negates Congress' constitutional role in setting the income tax code.
Advocates say it's a simple way to rein in corporate tax planning, by pitting a company's desire for reduced tax liability with its incentives to attract investors.
The Institute on Taxation and Economic Policy, a left-leaning research and advocacy group on tax policy, said the corporate minimum tax could counteract the effects of tax preferences such as immediate expensing and the ability to claim deductions on stock options.
"Congress can simply repeal these tax breaks and enact laws to fairly tax all the profits of corporations, without special exceptions or rules that allow companies to claim lower profits for tax purposes than they report to the IRS," wrote Matthew Gardner and Steve Wamhoff, both with ITEP, in a post on July 29. "But in the absence of that type of precise, surgical reform to our tax code, Biden's minimum corporate tax proposal is good enough."
--Editing by Tim Ruel and John Oudens.
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