Minimum tax proposal drives wedge between corporate interests

Corporate lobbyists are aggressively pressing Senate Democrats to scrap a minimum tax on corporations’ income included in the House-passed $2 trillion climate and social spending package.

The proposal, which would require around 200 of the nation’s largest companies to pay a minimum 15 percent federal income tax, has swiftly become a top priority on K Street. But unlike with other tax hike proposals, corporate America isn’t united in opposition to the minimum tax.

Manufacturers, electric utilities, drugmakers, wireless companies and other industries that use lucrative deductions to avoid paying substantial federal income taxes are pushing back on the proposal, saying it would severely burden their ability to invest in the U.S.

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But some large retailers, which don’t benefit from the same tax write-offs, are lobbying for the minimum tax, arguing that it fulfills President BidenJoe BidenNorth Korea conducts potential 6th missile test in a month Clyburn predicts Supreme Court contender J. Michelle Childs would get GOP votes Overnight Defense & National Security — US delivers written response to Russia MORE’s campaign pledge of making all highly profitable companies pay their fair share, like retailers say they already are.

“For a group of members like ours who are truly paying their full freight in taxes, the idea that others should be paying their taxes shouldn’t feel so radical,” said Hana Greenberg, vice president of tax at the Retail Industry Leaders Association, which represents large retail companies such as Target, Walgreens and Best Buy.

Retailers previously joined other corporate interests in strongly opposing a corporate tax rate increase included in Democrats’ initial reconciliation package, which they argued would have exacerbated tax discrepancies between industries.

“If policymakers are concerned about some companies that utilize so many tax preferences that they are able to greatly lower their effective tax rates, the best way to address that is to either eliminate those tax preferences or institute a minimum tax,” said Rachelle Bernstein, vice president and tax counsel at the National Retail Federation, another leading retail group.

The minimum tax will only apply to companies with more than $1 billion in annual “book” income, or the amount of income corporations publicly report on their financial statements to shareholders. At least 70 public companies hit that threshold but paid less than 15 percent in federal taxes last year, including Amazon, Bank of America, Netflix, Regeneron Pharmaceuticals and T-Mobile, according to a report from Sen. Elizabeth WarrenElizabeth WarrenOver 80 lawmakers urge Biden to release memo outlining his authority on student debt cancellation Kelly pushes back on Arizona Democrats' move to censure Sinema Fiscal conservatives should support postal reform  MORE (D-Mass.).

Affected industries argue that the minimum tax would discourage them from making domestic investments in research and development as well as capital assets such as machinery and equipment. They say that not all tax provisions are included in financial statements, creating confusion over what kind of income can be deducted.

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“When Americans are counting on manufacturers to lead our recovery and respond to supply chain challenges, a tax specifically targeting our industry makes absolutely no sense and jeopardizes Americans’ economic future,” Christopher Netram, vice president of tax and domestic policy at the National Association of Manufacturers, told The Hill Monday.

The manufacturing association was one of several business groups who wrote a letter to congressional leaders last week saying that “Businesses rely on stability, and a book tax will create uncertainty as the regime interacts with other portions of the tax code, such as accelerated depreciation, incentives for research and development, foreign tax credits, pensions and net operating losses.”

Democrats added the minimum tax proposal to their reconciliation package in October to replace a corporate tax rate hike opposed by Sen. Kyrsten SinemaKyrsten SinemaThe names to know as Biden mulls Breyer's replacement Poll: Sinema approval higher among Arizona Republicans than Democrats Schumer vows to vote on Biden Supreme Court pick with 'all deliberate speed' MORE (D-Ariz.). Lobbyists said that since then business interests have made inroads with Senate Democrats on the issue.

“You see these effects across the economy from a provision that’s never been in our law before, and there’s a lot of concern amongst industry and in the Senate Democratic caucus,” said Al Mottur, a Democratic lobbyist at Brownstein Hyatt Farber Schreck LLP.

“The more people learn about this proposal, the more concerned they get,” he added.

Lobbyists and business groups from certain industries are pushing for incremental changes to the proposal.

Some are warning Democrats that the minimum tax would count investment income on pension plans, potentially forcing pension fund operators to sell assets in order to pay down a large tax bill if their company surpasses the income threshold. They’re pushing lawmakers to exempt pension plans from the minimum tax.

Energy groups such as the American Council on Renewable Energy, Edison Electric Institute and American Clean Power Association are lobbying Democrats to exempt renewable energy firms or risk undermining the climate benefits of their own green energy tax credits.

Warren’s report found that American Electric Power and Xcel Energy, two of the nation’s largest utilities, received more money in refunds from the federal government than they paid in taxes, giving them an effective negative federal tax rate.

“We believe renewable energy is fully protected under the language,” Senate Finance Committee Chairman Ron WydenRonald (Ron) Lee WydenSenate Democrats urge Biden to get beefed-up child tax credit into spending deal Overnight Energy & Environment — High court will hear case on water rule Democrats face scaled-back agenda after setbacks MORE (D-Ore.) told reporters last week. “We’ll continue to have those discussions and see what else can be learned.”

But big business groups are pushing lawmakers to remove the minimum tax entirely, arguing that it cannot be salvaged with minor tweaks.

Joshua Bolten, CEO of the Business Roundtable, which represents executives at large corporations such as FedEx and General Motors, told reporters last week that the minimum tax “would undermine incentives adopted on a bipartisan basis to increase investment in the U.S.”

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Around a half-dozen Senate Democrats have privately expressed anxiety about how the minimum tax proposal affects pension funds or dominant industries in their home states, but it’s unclear whether any of them would actually oppose the measure, lobbyists said.

Rejecting the minimum tax could be a hard sell, given Biden’s goal of ensuring large companies pay federal taxes, and that almost all opposition to the proposal comes from the nation’s most profitable companies. Divisions within corporate America over the measure could further complicate that equation.

The minimum tax already has the support of Sinema and Sen. Joe ManchinJoe ManchinOn The Money — No SALT, and maybe no deal The names to know as Biden mulls Breyer's replacement Poll: Sinema approval higher among Arizona Republicans than Democrats MORE (D-W.Va.), whom business interests have repeatedly leaned on to tweak or defeat other Democratic proposals that would hurt their profits. Democrats intend to pass the measure through reconciliation, meaning they don’t need Republican support but do need every Democrat on board.

Still, Manchin’s insistence on a smaller reconciliation package could eliminate the need for a minimum tax, which would raise around $320 billion. Manchin has said he doesn’t want the $180 billion paid leave program to be in the reconciliation package and has been noncommittal about extending the expanded child tax credit, which would cost around $185 billion.

Manchin has also insisted that he wants to delay the reconciliation package until next year. That would give business interests more time to convince lawmakers to modify the minimum tax or outright block it, lobbyists said.

Senate Majority Leader Charles SchumerChuck SchumerSchumer vows to vote on Biden Supreme Court pick with 'all deliberate speed' Voting rights failed in the Senate — where do we go from here? Forced deadline spurs drastic tactic in Congress MORE (D-N.Y.) said Monday that he aims to vote on the reconciliation package by Christmas, but both K Street and Senate Democrats think that timeline is unrealistic.