Biden unveils plan to tax big corporations

The new draft rules mark a major milestone as Washington prepares for a sweeping overhaul of tax laws in 2025.

The Biden administration on Thursday (12) unveiled new bills that could raise taxes on about 100 large, highly profitable companies, some of which pay little or nothing to the federal government annually. The move comes as a broad rethink of the U.S. tax code is expected in 2025, sparking fierce political debate.

The 600-page technical plan marks a milestone in a process that has been ongoing for two years since President Joe Biden approved an economic package aimed at cracking down on companies that use complex accounting strategies to drastically reduce their taxes. But the new federal tax guidelines come amid a heated election season that could influence a future partisan battle over Donald Trump’s 2017 tax cuts, which are set to expire.

Under the current U.S. tax system, corporations are taxed at 21 percent of their income. However, many companies are able to significantly reduce this tax rate by deducting losses or expenses, such as infrastructure improvements or research. This results in some of the country’s most profitable companies paying much lower effective rates, sometimes close to zero.

Having failed to raise the corporate tax rate, Biden implemented a new 15% minimum tax on companies reporting more than $1 billion in revenue as part of the Inflation Reduction Act of 2022. The tax is intended to help fund investments in climate and health care. The Treasury Department estimates the minimum tax will generate about $250 billion over a decade, with $20 billion coming next year.

Deputy Treasury Secretary Wally Adeyemo said the proposal would address a disparity in which companies with “record profits” pay less to the federal government, ensuring greater tax fairness. The exact list of companies affected has not been released, but it is expected to include about 100 companies. Previous research has suggested that large corporations such as Amazon.com, AT&T and Berkshire Hathaway could be among those affected, although some may dispute the payments.

So far, companies like Airbnb and Duke Energy have indicated they may face new tax liabilities. The new law requires companies to calculate their taxes based on “book income” disclosed to investors, rather than traditional taxable income. However, deductions such as tax credits for promoting renewable energy will still be allowed, meaning some companies could pay less than the 15% minimum tax rate.

Congress has delegated responsibility for defining the logistics of implementing the tax to the Treasury Department, which has solicited public comment on the proposal. Meanwhile, experts say companies will face significant challenges in understanding and implementing the new system.

Even before the announcement, the Treasury Department faced criticism from major lobbying groups including the U.S. Chamber of Commerce and representatives from industries such as pharmaceuticals and technology, which are pushing to expand tax breaks under the new tax.

These groups are likely to continue pushing for changes as Congress debates the future of the 2017 tax cuts. Some Republican lawmakers have already vowed to scrap Biden’s corporate minimum tax as part of a campaign against the Inflation Reduction Act.

The direction of this debate will depend on the outcome of the 2024 election. Trump has proposed extending the tax cuts, including reductions for all income brackets and more deductions for business expenses. He has also advocated further reducing the corporate tax rate, targeting 15% for companies that produce domestically. In contrast, Kamala Harris supports Biden’s tax proposals, including raising the tax rate for the wealthy, raising the corporate rate to 28%, and providing new tax breaks for small businesses and low-income families with children.