Democrats’ book minimum tax to hit real estate, mining companies the hardest
Real estate and mining industries would face heaviest tax burden under new proposal
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One of the biggest revenue raisers in Democrats’ latest health care and climate change spending bill is a new minimum tax on companies’ book income – but the levy will hit some industries harder than others.
The Inflation Reduction Act of 2022 – introduced by Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.Va. – would impose a 15% minimum on corporations based on profits they publicly report on their financial statements to shareholders.
The tax would only apply to companies that reported more than $1 billion in income. Democrats said the levy would affect around 200 of the country's largest corporations – with profits exceeding $1 billion – that pay less than the current 21% rate for businesses. Schumer and Manchin estimated the tax would generate about $313 billion in new revenue over the next decade.
But the tax would be disproportionately borne by certain industries, thanks to a number of carve-outs, according to an updated analysis of the proposal conducted by the nonpartisan Tax Foundation, which advocates for lower taxes.
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Senate Majority Leader Chuck Schumer speaks during a news conference after passage of the Inflation Reduction Act at the U.S. Capitol, Aug. 7, 2022. (Drew Angerer/Getty Images / Getty Images)
The real estate, rental and leasing industry would face the heaviest burden under the book tax minimum, seeing a net tax hike of 12.7%. That would be followed by mining, which faces a 4.6% tax hike. In dollar terms, the industries that would account for the largest book minimum tax liabilities are manufacturing ($65.9 million) and finance, insurance and management ($39.4 million).
These industries see a sharper impact because they are at the intersection of the different book tax gaps targeted by Congress.
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Lawmakers are looking to go after permanent discrepancies between the two measures from firms paying low taxes, but the proposal will more severely affect businesses with temporary timing differences between financial and taxable income; deliberate tax incentives created by Congress (such as bonus depreciation); and special items that show up in one income definition but not the other, the Tax Foundation said.
Houses under construction at the Norton Commons subdivision in Louisville, Kentucky, on July 1, 2022. (Luke Sharrett/Bloomberg via Getty Images / Getty Images)
"The book minimum tax affects industries very differently, some of which may be unintended, reflecting a tax proposal that has not been fully vetted," the Tax Foundation wrote in its analysis. "Before introducing a new tax on book income, and asking the IRS to administer it and taxpayers to comply with it, lawmakers should consider whether these disparate impacts by industry are consistent with their tax policy goals."
Revenue raised by the policies would go toward initiatives designed to combat climate change and curb pharmaceutical prices, as well as efforts to reduce the nation's $30 trillion debt. It includes about $433 billion in new spending, while roughly $300 billion of the new revenue raised would go toward paying down the nation's deficit, a priority for Manchin.
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The Senate and House both approved the Inflation Reduction Act last week. President Biden is expected to sign the bill into law at some point this week.
It will amount to one of the largest tax hikes in decades.