Build Back Better’s Proposed Corporate Profits Minimum Tax Rate and How it Compares to Other Leading Economies

The future of the current version of the Build Back Better Framework (“The Act”) from the Biden administration is uncertain, primarily due to lack of support from Democratic Senator Joe Manchin of West Virginia.[1] However, it is still worthwhile examining the elements of this framework because it is a good indicator of where the present administration is headed in its attempt to “rebuild” the American economy.[2] The Act includes funding for various programs as well as significant new tax provisions intended to help offset the cost.[3] The proposed ‘corporate profits minimum tax,’ originally proposed by Senators Ron Wyden, Elizabeth Warren and Angus King, is a key funding source for the $1.75 trillion cost of the Act.[4] Senator Manchin has signaled his support on this aspect of the framework.[5]

The Act would not change the current corporate rate of 21 percent[6] but would include a 15 percent minimum tax based on book income for large companies reporting over $1 billion in profits and a 1 percent excise tax on corporate stock buybacks.[7] This will likely result in an overall increase in the effective tax rate for most multinational companies.[8] This is in alignment with the Act’s goals of stopping large, profitable corporations from not paying taxes, discouraging corporations from buying back stocks rather than investing in their company, and discouraging domestic corporations from shipping jobs and profits overseas.[9] It is anticipated that these changes will raise $450 billion in tax revenue.[10]

The 2017 Tax Cuts and Jobs Act (“TCJA”) reduced the US corporate tax rate from 35 percent to 21 percent, making the US corporate tax rate lower than all other leading economies in the G7 except the United Kingdom.[11] Compared to other leading economies, taxes from the US corporations currently raise a much lower share of the gross domestic product (“GDP”).[12] The proposed corporate minimum tax has the potential to become the funding mechanism that will make corporate taxes line up better with their profits, which will ultimately aid the millions of Americans.[13]  It is also worth noting that in 2021, the G7 nations reached a historic deal on global tax reform that sets up the adoption of a global minimum tax of 15 percent for corporations, which would increase taxes on companies with earnings in low-tax jurisdictions.[14]

The proposed corporate minimum tax, along with a potential global minimum tax on corporations, has the financial force necessary to effectively regulate tax avoidance tactics applied by multinational corporations and is a step towards a fair and globally consistent corporate tax system.

Samana Bhatta is a staff member of Fordham International Law Journal Volume XLV.

This is a student blog post and in no way represents the views of the Fordham International Law Journal.
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[1] See Daniella Diaz, Manchin says he won’t vote for Build Back Better, CNN (Dec. 19, 2021), https://www.cnn.com/2021/12/19/politics/joe-manchin-build-back-better/index.html.

[2] See The Build Back Better Framework, White House, https://www.whitehouse.gov/build-back-better/ (last visited Jan. 9, 2021).

[3] See Build Back Better Act – Corporate Tax Perspective, Baker Botts (Nov. 24, 2021), https://www.bakerbotts.com/thought-leadership/publications/2021/november/build-back-better-act-corporate-tax-perspective.

[4] See What Build Back Better means for businesses, EY (Nov. 8, 2021), https://www.ey.com/en_us/tax/what-build-back-better-means-for-businesses; See also Press Release, Elizabeth Warren, Senator, U.S. Senate, Senators Warren, King, and Wyden Announce Updated Proposal To Prevent The Biggest And Most Profitable Corporations From Paying Nothing In Federal Taxes (Oct. 26, 2021), https://www.warren.senate.gov/newsroom/press-releases/senators-warren-king-and-wyden-announce-updated-proposal-to-prevent-the-biggest-and-most-profitable-corporations-from-paying-nothing-in-federal-taxes.

[5] See Sarah Ewall-Wice, How taxes for the wealthy and big corporations would change under the new social spending plan, CBS News (Oct. 29, 2021), https://www.cbsnews.com/news/build-back-better-tax-changes-wealthy-big-corporations/.

[6] See infra note 11.

[7] See supra note 4; See also supra note 3 (elaborating that the Act would generally impose a 15% corporate alternative minimum tax (the “Corporate AMT”) on the adjusted financial statement income (“AFSI”) of any corporation (other than an S corporation, regulated investment company or real estate investment trust) with a three-year average AFSI of greater than $1 billion, effective for taxable years beginning after December 31, 2022.).

[8] See supra note 4.

[9] See supra note 2.

[10] See supra note 5.

[11] See Key Elements of the U.S. Tax System, in The Tax Policy Briefing Book, Tax Policy Center (last visited Jan. 9, 2021), https://www.taxpolicycenter.org/briefing-book/how-do-us-corporate-income-tax-rates-and-revenues-compare-other-countries.

[12] See id.

[13] See Daniel Shaviro, Opinion, Build Back Better is a chance to finally make corporate taxes line up better with profits, The Hill (Dec. 16, 2021), https://thehill.com/opinion/finance/585906-build-back-better-is-a-chance-to-finally-make-corporate-taxes-line-up-with?rl=1.

[14] See Daniel Bunn, What’s in the New Global Tax Agreement, Tax Foundation (Oct. 8, 2021), https://taxfoundation.org/global-tax-agreement/.