The company’s minimum tax may affect these ultra-profitable companies

Tax deductions and tax deductions are purposefully designed as tools to stimulate certain behaviour. But because they reduce companies’ tax bills, they risk the effectiveness of a minimum tax. Businesses can still use carve-outs for research and development, capital expenditure and others to lower their tax bills. The Democrats’ climate proposal comes in the form of tax relief – which is also exempt from the company’s minimum tax rate.

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Because of these exemptions, it will still be possible for profitable companies to achieve a tax rate below 15 percent, Daniel Bunn, executive vice president of the Tax Foundation, said in an email.

The minimum tax proposal would raise $220 billion over 10 years, according to the Joint Committee on Taxation, a nonpartisan congressional body that analyzes tax bills. The minimum tax rate will apply to companies that reported to shareholders an annual average of $1 billion in annual profits over three years.

More than 250 companies in the S&P 500 averaged more than $1 billion in pretax income over the past three years, according to a Washington Post analysis of Calcbench data. Of these, 83 paid less than 15 per cent in income tax globally. The list includes tech companies like Amazon and Intel, banks like Bank of America and US Bancorp, telecom giants Verizon and AT&T, and other household names like General Motors and UPS.

The rate is calculated according to global income, meaning a company could theoretically “have a domestic effective tax rate below 15 percent as long as their foreign profits were taxed higher,” Kyle Pomerleau, a senior fellow at the American Enterprise Institute, said in an e -mail.

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President Biden often notes that 55 profitable companies paid no federal income tax in 2020, according to an analysis by the Institute on Taxation and Economic Policy, a liberal think tank.

The discussion avoids the fact that companies often pay different amounts in tax from year to year. But it points to a truism that Democrats aim to fix: In the long run, many companies pay less than today’s standard corporate tax rate of 21 percent.

Some companies avoid federal income taxes by redirecting income to countries where they operate with lower tax rates. Until the end of 2019, Google’s parent company, Alphabet, licensed its own intellectual property from Bermuda – an offshore tax haven. Alphabet reported that its global effective tax rate in 2018 and 2019 was lowered by billions because “substantially all” of its foreign income was earned by its Irish subsidiary, according to a securities filing.

Companies also lower their taxes through deductions and credits. Amazon shaved $3 billion off its tax bills from 2019 to 2021 through the use of stock-based compensation and another $2.2 billion for other tax credits, including one for research and development, according to securities filings. The company reported federal tax expense of $4.1 billion for those years on $69.4 billion in U.S. pretax profits — an effective federal rate of less than 6 percent. (Amazon founder Jeff Bezos owns The Post.)

To gain support from Sen. Kyrsten Sinema (D-Ariz.), Democrats amended their minimum rate proposal to exclude deductions for certain investments and exempt firms owned by private equity. These last-minute changes will further help some ultra-profitable companies pay less than the minimum rate.

This analysis was based on data from Calcbench, obtained from company filings with the Securities and Exchange Commission. The figure shows cash effective tax rates (tax cost divided by income before tax). The chart includes the 20 most profitable companies in recent years that disclosed enough numbers to make the calculation.