Book Income Tax Becomes Law

Democrats have long agreed on the idea of raising taxes on big corporations and rich individuals, but a book tax was never their first choice—nor was it expected by most tax experts. Now Senator Joe Manchin, in an unlikely alliance with the more progressive members of the party, may get the last laugh on the experts.

This new minimum tax on big corporations was seen as too messy and complicated to actually become law, and many believe it will bring with it lots of unintended consequences,

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The tax is designed to target companies that pay little or nothing to the IRS, but report big profits to Wall Street. Firms making $1 billion or more in a year would be required to pay at least 15% on the profits they report to investors.

According to the Joint Committee on Taxation, about 150 companies would owe an additional $313 billion over the next decade as a result of the tax—in 2020, roughly 55 large, profitable companies did not pay any federal income tax, the liberal Institute on Taxation and Economic Policy has said.

“Many people in West Virginia don’t—couldn’t believe that corporations aren’t paying anything,” Manchin said on NBC’s Meet the Press, despite the fact that news outlets have been reporting for years that major companies are often avoiding paying taxes altogether.

Naturally, there are many critics of the book income tax. Many have complained that if there are tax breaks in the code that lawmakers don’t like, they should simply remove them—not limit companies from claiming “good” and “bad” tax breaks alike. However, in Congress almost no legislation is ever simple or easy to get passed.

Under the new tax, companies will have to pay 15% not on the income they report to the IRS, but on the earnings they report to the SEC. But, those two things are based on entirely different and separate accounting systems, and accountants have said bringing them together introduces lots of difficulties, and the complexity will be too much to handle.

“The proposed minimum corporate tax violates numerous elements of our twelve guiding principles of good tax policy,” the American Institute of Certified Public Accountants said in a letter last month to lawmakers. However, supporters of the new tax have shrugged off complaints that the proposal is too complicated, saying corporations have big tax departments that can handle the complexity.