WILFORD: The Coming ‘Book Minimum’ Debacle

Andrew Wilford Contributor
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With the passage of the (ill-named) Inflation Reduction Act, a somewhat wonky corporate tax increase was signed into law. While a poorly-conceived tax from the get-go, a slapdash rollout and confusion about how the tax will actually work means that it threatens to become an even greater burden on the economy than it already would have been.

Progressives like Sens. Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) have long stirred up misplaced anger at businesses with low tax bills in a given year. Generally, this happens because businesses, far from cheating or relying on “loopholes,” plan around and use deductions that Congress intentionally inserted into the tax code to promote fair tax policy and economic growth.

An example of this came when reports came out that Amazon paid no taxes in 2018. While progressives predictably seized on this to attempt to prove that large corporations cheat, the truth is that Amazon simply responds to the incentives legislators of all parties intentionally place into the tax code. Amazon is well-known for reinvesting profits back into the company rather than paying them out to shareholders through stock buybacks (the latter an activity progressives claim to want to discourage).

The fact is that these progressives want to have their cake and eat it too — they recognize that the tax code must encourage economically productive corporate activity, and generally support the specific deductions and exemptions that do so. But at the same time, they want to be able to claim ignorance about how it happens.

Enter the “book minimum tax,” a tax aimed at accomplishing this cake eating/having goal. The rationale, as espoused by Sen. Warren, is that corporations’ “book income” often differs from their taxable income. Of course, that is because the two types of income describe two different things — otherwise there would hardly be a need for separate categorizations.

“Book income” is the accounting method corporations use to report fiscal health to shareholders, and is meant to function as an accounting of revenues and expenses. Taxable income, on the other hand, represents income after accounting for various deductions in the tax code. 

If progressives objected to specific deductions, the obvious solution would be to simply push to eliminate them. Instead, progressives have preferred a convoluted approach, creating in effect a parallel tax code that kicks in if Democrats deem that the corporation in question did not pay enough taxes through the traditional tax code. 

Of course, this in itself dilutes the value of the economic incentives in the tax code — after all, it is hardly as worthwhile to plan your business activities around a tax incentive if you get tossed into the Secondary Tax Code For Bad Companies if you use it too much. That alone makes the parallel tax code idea a needlessly complicated solution to legislators wanting to attack the vague notion of tax underpayment without actually wanting to change anything in the traditional tax code.

But the mechanics of how this parallel tax code will work make the idea even worse. With less than a month and a half left until the book minimum tax kicks in, the Treasury Department has yet to issue guidelines on how the tax will actually function — how it kicks in, how it is computed, what credits and deductions still apply to this parallel tax code, and so on. 

Even if guidelines came out tomorrow, it wouldn’t be enough time for businesses to adjust for the new tax and integrate it into their accounting. And in the meantime, they’re stuck twiddling their thumbs while Treasury dithers.

While Congress should really just scrap the tax, it must consider something like a six-month delay to implementation just to give Treasury time to publish guidance and businesses time to process the information when it comes. The tax is already foolish, but that’s better than foolish and impossible to comply with in time.


Andrew Wilford is a senior policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax and fiscal policy research and education at all levels of government.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.