Once upon a time, The Beatles’ hit “Taxman” was a parody. Today, it’s the reality of the progressive movement as they scramble to come up with something, anything to pay for their massive social spending spree. Nothing is off limits in the quest for more taxpayer dollars.
The Democrat scramble to pass a massive social-spending bill and a companion, supposedly bipartisan infrastructure bill has transformed almost entirely into a bizarre quest to discover new and previously unknown taxes. The goal is for the progressive wing of the party to come up with some scheme at least somewhat palatable to the moderate wing, largely represented by Senators Joe Manchin and Kyrsten Sinema along with a few members of the House of Representatives. Under consideration this week alone are a new, never before instituted corporate minimum tax and a new, quite likely unconstitutional tax on unrealized capital gains. Both have been whipped up practically on the spot, with little consideration of the ramifications, and are near certain to unleash the full fury of the law of unintended consequences, but progressives don’t seem to care.
The corporate minimum tax proposal was released on Tuesday by Senators Elizabeth Warren, Angus King, and Ron Wyden. The current plan is to enact a 15% minimum rate on declared income from “large” corporations. This tax would be payable regardless of most prior losses, meaning businesses that invest in the early stages of their existence would no longer be able to offset their future profits. The plan applies to companies that have publicly reported more than $1 billion in profits for three years and there are some exceptions under the heading “the value of business credits” that include research and development, carrying forward of losses, and foreign tax credits. It’s believed the tax would apply to about 200 American companies, but the credits allowed haven’t been fully released and there is a rather odd provision that the Treasury Department has discretion on which companies are affected and what CNBC describes as “the finer details of its imposition.”
For example, the Treasury Secretary has the ability to “determine that it would not be appropriate to continue to treat such corporation as an applicable corporation.” Also, “the Secretary shall provide regulations and other guidance for the purposes of carrying out this subsection,” and the “Secretary shall issue regulations and other guidance to provide for such adjustments to adjusted financial statement income as the Secretary determines necessary.” Similar clauses appear elsewhere in the language released by Senator Warren’s office. In other words, no one really knows how these taxes will be applied, and they are likely to be applied unevenly based on the discretion of whoever actually occupies the role of Secretary of the Treasury at the moment.
Notwithstanding that obvious concern, Senator Wyden explained in a statement, “The most profitable corporations in the country are often the worst offenders when it comes to paying their fair share. Year after year they report record profits to shareholders and pay little to no taxes. Our proposal would tackle the most egregious corporate tax dodging by ensuring the biggest companies pay a minimum tax.” Amazon, for example, is a specific target, paying an effective tax rate of 4.3% against $45 billion in profits over three years, which is well below the standard 21% rate. President Biden himself had proposed a similar tax earlier this year as part of the “Made in America” agenda, though that plan applied only to companies with $2 billion in profits and also didn’t have a three year rule, meaning it would have applied to far fewer companies.
At the risk of sounding somewhat progressive, I don’t find the idea of a minimum tax on behemoth companies to be particularly onerous or destructive in principle. There is reason to be concerned about how poorly thought out this version is and the discretion granted to the Treasury Secretary, but I generally agree large companies are not paying enough in taxes. These companies use losses from years earlier, some which were accrued through the aggressive, competition stifling acquisition strategy that dominates big business today, to offset massive profits in the future. Amazon of all companies should surely be paying a higher rate. This doesn’t mean there will not be unintended consequences: Corporations don’t have money of their own, and the difference they pay to Uncle Sam will result in lower wages, less investment, and potentially higher prices. These are legitimate issues when inflation is already spiraling and we’re in the midst of a shortage of everything. It also doesn’t seem likely to generate a lot of money. Under the new plan, Amazon would have paid $6.75 billion in taxes over three years instead of $1.935 billion, a net difference of $4.815 billion. That means they are likely to pick up around $1.6 billion per year from one of the largest, most profitable companies on the planet. They will need a lot more to cover the trillions in spending they are proposing, especially as President Biden insists this new bill will not increase the deficit a single penny.
The other proposal is far more radical and likely to have far more wide ranging implications. The so-called billionaire’s tax is a new spin on the sort of wealth taxes long promoted by Senator Warren and other progressives. In this incarnation, the tax wouldn’t be applied on the full wealth of the individual, but rather on the gains of assets, whether or not that asset has been sold and the gains actually realized. It’s essentially a tax on what might have been. For example, if Jeff Bezos owns a stock that is worth $10 on January 1, but increases to $15 on December 31, he would pay taxes on the $5 gain, even if the same stock dropped back to $10 on the first day of trading on January 2. In addition to stock, the tax would apply on real estate and other holdings that are notoriously difficult to assign a specific value. For those “non-tradable assets,” the tax would be deferred until it was sold, meaning the taxes owed on a property could potentially exceed the value at some point if an asset were to increase for a decade and then suddenly decrease.
“I’ve been talking about this for years,” said Senator Warren, who ran for president on a wealth tax platform in 2020 and fully backs Wyden’s approach. Oddly, she added, “I’ve even made billionaires cry over this.” As one might expect, whether or not such a tax is workable in practice or even Constitutional in the first place is of little or no concern. Assessing the value of stock on January 1 and December 31 is relatively straightforward, but the same cannot be said for real estate and other holdings whose value is often in the eye of the beholder. Even assuming a value can be properly assessed, where is the money supposed to come from except through the sale of these assets, which would devalue them substantially because who is going to be the buyer except another billionaire, also dumping assets? I know it is hard for progressives to understand but billionaires don’t keep their money stuffed into a mattress. They’re wealth is in investments, and to be realized the investment needs to be sold. Selling expensive investments require buyers that can afford them, most of whom would likely be looking to sell under this new regime.
The Constitutionality of this proposed scheme would also be of critical importance in any normal era. The power of the federal government to tax income was established with the passage of the 16th Amendment in 1913. The amendment states very clearly “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” While “incomes, from whatever source derived,” has generally been construed broadly to include the sale of assets and other investments, the plan proposed by progressives doesn’t require a sale and hence doesn’t require any income. What precisely is being taxed in this case? Stocks for instance are volatile, what is up on December 31, can come down immediately in the new year, meaning taxes could be paid on what ultimately results in a loss. Is a supposedly conservative Supreme Court really going to accept that unrealized income, as in money the individual never actually possessed, is actual income?
I find it doubtful, but who knows? One thing remains certain at this point: No tax is out of bounds for progressives. They couldn’t make their view of the American people any more clear: We are a cow who’s not giving enough milk and they’ll stop at nothing to get more. In addition to the new taxes floated just this week, they’ve previously considered increasing individual tax rates, corporate tax rates, capital gains tax rates, new estate taxes, new payroll taxes, additional surcharge taxes on income, and new tobacco taxes on more products than ever before including cigars. The infrastructure bill includes plans for a pilot program on a mileage tax which might well morph into a carbon tax. The goal is always the same: Take more to feed their insatiable desire to spend, even as they can’t agree on the best method or even what to spend it on. After months of supposed negotiations, all they have really agreed upon is that they want to tax and spend.
Don’t believe me? Democratic Representative Brendan Boyle told reporters this week, “We are just missing two things: What exactly is going to be in the bill and how we’re going to pay for it? Other than that, we are good to go.” This very morning President Biden delayed his trip to Europe for the climate summit in a last minute push to come to some sort of deal. What will be included or if any deal will be made is anyone’s guess. In the meantime, as The Beatles once sang, “Let me tell you how it will be, There’s one for you, nineteen for me, Cause I’m the taxman, Yeah, I’m the taxman, Should five percent appear too small, Be thankful I don’t take it all.”