Finance Committee Republicans: Congress Should Close Minimum Tax Book on Failing Books
Washington DC–Republican members of the Senate Finance Committee, led by Ranking Member Mike Crapo (R-Idaho), have urged Senate colleagues to reconsider efforts to implement a corporate financial statement income tax. US, or an “accounting minimum tax”, detailing the issues and unresolved issues that have resulted from such proposals in the past. As the senators note, Republicans and Democrats rejected a previously enacted minimum book tax because of its many flaws and negative effects.
“This fundamentally flawed proposal, which has not been properly endorsed by any of Congress’s tax drafting committees, risks serious harm to U.S. manufacturers, further supply chain disruptions and, ultimately, cost U.S. jobs and investment. . . . Now is not the time to resurrect a nefarious policy that would massively hit U.S. manufacturers and supply chains, as well as undermine critical research and development and the investments in renewable energy and other emerging technologies.
“Put simply, accounting income is not calculated and reported for tax purposes, and taxable income is not calculated and reported to provide a statement of financial position to investors. Mixing the two would confuse different concepts and objectives, to the detriment of both tax policy and accounting standards.
“Even more alarming is that this proposal, which would affect hundreds of American businesses, millions of American jobs and a massive part of the American economy, is being pursued without proper review by the Senate Finance Committee or the Committee on ways and means of the House. in an audience or markup. As a result, unintended consequences are sure to follow, requiring exclusions beyond the one recently and hastily added for pension plans.
The full text of the letter, signed by all members of the Republican Finance Committee, is available here and lower.
We urge you to reconsider the proposed US corporate financial statement income tax (the “accounting minimum tax”) included in the Build Back Better Act (HR 5376). This fundamentally flawed proposal, which has not been properly endorsed by any of the Congressional tax drafting committees, risks seriously harming American manufacturers, worsening supply chain disruptions and, ultimately, costing jobs and investments in the United States. While Republicans and Democrats may disagree on the best tax policy to create well-paying American jobs and facilitate sustainable economic growth, both parties have rejected a previously enacted minimum tax on the books because of its many flaws and negative effects. Now is not the time to resurrect harmful policy that would massively hurt American manufacturers and supply chains, as well as undermine critical research and development and investment in renewable energy and other emerging technologies.
As currently proposed, the Minimum Tax on the Books would impose a minimum tax of 15% on U.S. businesses, but not on the income they are required to report to the IRS, known as income taxable. Instead, tax would be levied on the income they report for financial statement purposes, known as accounting income. In doing so, the proposal would forgo tax-code-based taxation in favor of accounting standards, which are determined without congressional oversight and may not reflect current realities of the business cycle.
Because capital investments are treated differently for accounting and tax purposes, the proposal would impose a particularly heavy tax on capital investments made by US manufacturers, energy companies and other big job creators. It would eliminate or drastically reduce the benefits of the very tax policies that Congress has spent decades crafting to encourage investment in American facilities and support American jobs. As the National Manufacturers Association has rightly pointed out,[I]imposing a tax on the books would not only undermine the recovery, but also make it harder to spend America’s next manufacturing dollar, which would negatively impact the growth of American manufacturing jobs that support the family. Taxation based on these differences between books and taxes would have a devastating impact on many businesses and sectors, including manufacturing, insurance, renewable energy, wireless, and projects relying on state and local funding.
Notably, a minimum tax on books was attempted in the late 1980s and ultimately failed, with both parties acknowledging the policy was unworkable. The policy proved so flawed that it was resoundingly voted down by Republicans and Democrats after three short years in Parliament. As the then Democratic Ways and Means chairman noted, “When used for tax purposes, the concept of book income not only invites manipulation, but can lead to inequitable outcomes due to temporary differences between tax and accounting rules”. This is a widely held view among experts. As the American Institute of CPAs (AICPA) has stated, “income tax provisions should not influence business decisions about adopting accounting policies. These types of distortions could potentially harm shareholders and creditors who depend on financial statements for important information. Public policy objectives in taxation should not play a role in influencing accounting standards or the resulting financial reports. The independence and objectivity of accounting standards are the backbone of our capital markets system. An accounting minimum tax, however well intentioned, will introduce more, not less, unfairness and uncertainty into our tax system.
Simply put, accounting income is not calculated and reported for tax purposes, and taxable income is not calculated and reported to provide a statement of financial position to investors. Mixing the two would confuse different concepts and objectives, to the detriment of both tax policy and accounting standards.
This proposal’s delegation of tax-writing power from Congress to an unelected and unaccountable board, such as the Financial Accounting Standards Board, is also of serious concern. As the AICPA noted, “[I]Making tax based on financial statement income takes the definition of taxable income out of the hands of Congress and puts it back in the hands of industry regulators and others. However, these and other industry regulators are not best placed to play a role that would, by its very nature, be both political and policy-oriented. Rather than abdicating its responsibility to an unelected and unaccountable council, Congress should continue to fulfill its constitutional obligations to the American people by retaining firm control of the tax-drafting process.
While we oppose many of the tax proposals included in the Build Back Better Act, our concerns about the fundamental flaws of the minimum tax on the books are overwhelmingly shared by policy experts. Economists recognize that the accounting minimum tax will increase the cost of capital for affected firms, and distortions will arise because “[c]companies in similar economic situations could face very different capital costs for the same investment. Similar concerns have even been raised within President Biden’s Treasury Department. According to the Washington Post, officials from the Treasury Department’s Office of Tax Policy expressed concern that “the new 15% minimum tax could have unintended consequences — such as limiting clean energy investment — and prove difficult to implement while making the tax code less effective”. .”
What is even more alarming is that this proposal, which would affect hundreds of American businesses, millions of American jobs and a massive part of the American economy, is being pursued without proper review by the Finance Committee of the Senate or the House Ways and Means Committee in a hearing or markup. Therefore, unintended consequences are sure to follow, requiring exclusions beyond the one recently and hastily added for pension plans. Given the apparent delay in the Senate’s processing of HR 5376, the Senate Finance Committee has sufficient time to properly review this legislation and consider its effect on the constitutional authority of Congress over the tax preparation process. . Setting important tax policies that will affect all Americans requires a formal scoping process, as was done with the Tax Cuts and Jobs Act in 2017, to allow input from both parties, instead of unilateral decision-making. and partisan.