Why It Will Probably Not Work As Advertised.
An opinion piece by Bernard J. Polster
- The Minimum Corporate Tax Rate And The Inflation Reduction Act (2022). Part 1 of 3
- The Minimum Corporate Tax Rate And The Inflation Reduction Act (2022). Part 2 of 3
- The Minimum Corporate Tax Rate And The Inflation Reduction Act (2022). Part 3 of 3
Questions that need to be asked:
- Will The Minimum Corporate Tax In the Inflation Reduction Act Work?
- Will the US Government collect the taxes to the tune of $223 billion over the next ten years?
I have my doubts.
To start with, and especially when it comes to the predictions and estimates of government spending and revenues, they are biased and exaggerated to the side that best fits the agenda of the government (politicians). Costs are always predicted to be lower, and revenues are predicted to be higher.
About a Governments’ predictions on costs: When was the last time a government program was under budget?
About a Governments’ predictions on revenues: When did a government program earn more, or even the same, as was predicted?
I am not saying that either of these two outcomes never happened. But I would suggest that an outcome that truly benefits we the people, is few and far between.
When one wants to make and win their point, they will go to the extreme that proves their point. We all do this to one degree or another. Politicians (The Government) is no exception. So, don’t believe everything you hear.
An Army Of Professionals.
What was the reason for this new tax law? According to President Joe Biden, American companies earning over $1 billion dollars per year were not paying any taxes at all. At all!
Why is this? Well, because a company that makes that much money per year can probably afford to have an army of lawyers and accountants in their employ to stay on top of corporate tax laws and then, to make sure that the company will pay as little (or even no) taxes at all in a given year.
This army of professionals are hired and paid to find ways not to pay taxes and I would guess that they are better versed in the laws than the people hired to enforce the laws, the fine people at the IRS.
Are companies evil for doing this? Are they bad for finding ways not to pay taxes? Not really. That is a corporate goal – to keep costs down. And it can be assumed that the methods that a company uses to avoid paying taxes are legal. That is, they follow the tax code and have the resources to find the loopholes that they can use to lower and even avoid their tax burden.
This same army of professionals will find ways to work around this new law as well. They law states on that the tax will be on profits. Okay then, so we can probably expect that companies will find ways to lower their profits. Maybe they will even lower their prices? I doubt it. But they probably will find other spending methods that will allow them to keep more of their earnings for their own use rather than to hand money over to the government.
Wouldn’t you do the same? You probably would. And so the $223 billion estimate will probably go down.
Move It Or Lose It
Some companies will probably move their corporate headquarters to other countries where the tax burden is less than it will be in the USA.
From a PBS article in 2017,
“We counted 10,000 tax haven subsidiaries among Fortune 500 corporations”.
PBS.org
And that US companies
“…shift activities offshore is also the main critique of another legal tactic known as an inversion. That’s when an American company changes its corporate citizenship by acquiring a firm based in a lower tax country or jurisdiction”.
PBS.org
“Since the 1980s, more than 50 American companies have pulled this off…with 25 such deals in the past five years alone”.
This was back in 2017. You can read the full article here:
https://www.pbs.org/newshour/show/corporations-go-overseas-avoid-u-s-taxes
Again, can you blame them?
If corporate head offices leave the US, the $223 billion estimate will probably go down.
Let’s play a game.
Let’s assume that a company, despite the current political and social climate, is willing to stay in the US and even pay their “fair share” of taxes. This will mean that in the immediate term, their costs will go up by the 15% of taxes that they will pay.
Corporations must answer to their shareholders. As we know, profits are the goal. If costs rise by 15% it should be expected that shareholders will demand that profits are not affected. In order to achieve this, a company can cut costs somewhere else, or raise their prices.
With either solution, cutting costs or raising prices, the 15% will be lost from the private sector. Instead, this money will be passed to the hands of government for “wealth distribution”. The main problem with this is that the government is probably the least efficient body to manage money.
Governments do not need to earn a profit. Even though the people are the “shareholders” of a government, the government does not need to directly answer to the people. At least that is how it seems to be. So, due to government inefficiency, in the end the money will get lost in the system.
Even if the government gets the $223 billion that they estimate the tax will get from corporations, the funds will be “lost” through the system. The plans the government had for the money will not all be completely realized.
Will it work. The short answer No. Probably not.
End of Part 2.
BAM!!! Be A Man! Do The Right Thing.
Be the DtRTy Guy!