The tax landscape in the United States has become more complex. The Inflation Reduction Act (IRA), which passed the Senate on August 7 and reaches the House of Representatives on Friday, sets a minimum tax of 15% on corporate profits. Its goal is to catch up with companies that make big profits but still pay, through optimization, an effective tax rate well below the nominal rate, currently set at 21%.
The new tax will apply to companies with more than $1 billion in written income, and theoretically targets about 470 groups in the United States. However, a large proportion of that number actually pay more than 15% tax. According to a congressional committee, the minimum rate could affect about 150 companies — General Motors like Ford, for example, paid a much lower rate of tax despite making big profits last year. It should also affect companies that pay their CEOs the most in stocks.
According to budget documents, the new tax will raise about $35 billion next year, and $222 billion over the decade. The minimum tax “would prevent some businesses from paying a low effective rate on their tax returns. But politicians are already grappling with exemptions from the new minimum tax, a debate that could continue if and when the tax is applied,” despite the jitters Thomas Bruce, of the Policy Center Tax, a nonpartisan think tank. Before the vote on the text in the Senate, manufacturers had already considered reducing its scope while preserving the depreciation benefits of the investment.
The term “minimum” tax and its rate – 15% – create confusion with the global minimum tax, which was approved under a wide international political agreement in 2021 to avoid competition between states for the lowest tax. The two projects do not overlap: In negotiations over the IRA bill, centrist Senator Joe Manchin, who alone was key to the political agreement, did not want to retain an international project, which in his view could penalize American companies.
On the other hand, he was willing to support the national anti-improvement weapon that was finally adopted. The perimeter of the minimum tax remains different – which has been prepared under the auspices of the Organization for Economic Co-operation and Development and specifically targets all companies with a turnover of more than 750 million.
It’s time to adapt
Referring to global minimum taxes, “there will be incentives over time to adopt this measure in the United States,” though Treasury Secretary Janet Yellen has spoken. Because without congressional approval, foreign countries “would impose this tax on American companies doing business in their jurisdictions, and America would simply lose tax revenue that we could use to invest in the strength of our economy, in the middle class,” she recalls.
The step may not be too high. “Congress has already made a down payment on the global minimum tax with the introduction of the Low Tax Intangible Global Income Tax (Gilti) in 2017. The rate for this tax is at least 10.5%, and many companies pay 13.125% or more. Daniel Boone recalls, The executive vice president of the Tax Foundation, a think tank close to employers, said that this tax rate would automatically rise after 2025.
So it is clear that Washington will not be a bridgehead, but in the absence of a European agreement, the United States has little time to adapt. “If other jurisdictions adopt the rules of the OECD agreement, Congress may be willing to amend the Guilty tax to bring it more in line with these rules as 2025 approaches,” said Daniel Boone.