Congressional Democrats debating revenue measures to pay for an expansion in social spending have dozens of options to increase the taxes collected from companies—though nearly all of them are more complicated and politically risky than just increasing the top-line rate.
Lawmakers are trying to cobble together alternatives to raising the 21% corporate tax rate—part of President Donald Trump’s signature tax law—after opposition from Arizona Senator Kyrsten Sinema, a crucial swing vote for Democrats.
The back-door corporate tax-hike options have the potential to raise hundreds of billions of dollars, but that would require Democrats to rely on a series of tax-code changes, ideas about which have yet to be fully developed.
Reversing Trump’s tax cuts—which never gained broad support from voters—has been the center of President Joe Biden’s tax plan, both symbolically and from a policy perspective. For some Democrats, it’s almost laughable that they wouldn’t increase the corporate tax rate.
“Boy oh boy—that would be a great irony if a Democratic president, House and Senate embraced the Trump tax cuts,” Senator Mark Warner, a Virginia Democrat, told reporters Thursday.
Changing course to fill the $540 billion gap that would result if the corporate rate isn’t raised—roughly one quarter of the social-spending package’s total cost-- would require Democrats to get creative about how to achieve their goal of coming up with enough money to fund the climate, health care and early childhood programs central to their economic agenda.
Here are some of the ways lawmakers could go after those corporate tax dollars:
Minimum Taxes
Instead of increasing the rate, Democrats could instead set a minimum that companies must meet—regardless of tax credits and deductions that would otherwise allow them to pay less.
The tax code used to have this function, something called the corporate alternative minimum tax, but it was eliminated in the 2017 Republican tax law because of high compliance costs, and it was increasingly out of sync with the rest of the tax code. Democrats could consider bringing this back, or they could mull another approach proposed by Biden that would require corporations to pay at least a 15% tax rate on the profits they report to shareholders on their financial statements.
This idea, known as a minimum “book tax,” would mean that companies that can avail themselves of lots of credits and deductions would still pay a base level to the Internal Revenue Service. The idea has been popularized by some Democrats, including Senator Elizabeth Warren, amid concerns that some companies, such as Amazon.com Inc., Nike Inc. and Netflix Inc., have been able to avoid paying any federal income taxes in recent years because they had so many tax breaks to offset their liabilities.