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The corporate minimum tax we already have: Gaertner and Hoopes in The Hill

Write-Off: The Tax Blog

President Biden has proposed a 15 percent corporate minimum tax. Has he forgotten that the U.S. already has a minimum tax rate and that it’s higher than 15 percent?

U.S. companies are obligated by law to pay, at a minimum, 21 percent of their U.S. taxable income in taxes, after adjusting for losses and tax credits. The 21 percent federal rate has been in place since 2018, and before that, the minimum tax rate was 35 percent. The minimum tax we have today is just the normal corporate income tax rate. So why all the talk of a new minimum tax if we already have one?

As it turns out, minimum taxes are really just an adjustment to the tax base — the thing that is being taxed. The amount corporations pay in income taxes is equal to the tax base multiplied by the tax rate. The tax base, or taxable income, is hard to compute and difficult to explain. The tax rate, on the other hand, can be summarized by a single number.

While the Internal Revenue Code is about a million words long, the section that defines the tax rate for U.S. corporations comes in at about 100 words. The important part of the section is only 16 words: “The amount of the tax imposed by subsection (a) shall be 21 percent of taxable income.” The majority of the Internal Revenue Code defines the tax base, dictating the relevant tax treatment for seemingly countless different types of economic inflows and outflows. Given this gap in complexity, it’s easy to see why politicians ignore the tax base and focus on the tax rate.

Read the rest at The Hill.

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