Biden Shifts Tax Focus to Minimum Tax, Off Rate Increase

State of the Union Address Recap

Last spring, when President Joe Biden released his “Made in America” tax plan, designed to fund his Build Back Better Agenda, its rhetoric didn’t meet reality. While it started with a statement of values, one built on the principles of a fairer code, that doesn’t preference one company over another, in which all pay their fair share, one tax increase stood out above all the rest – increasing the corporate rate to 28%. It was the largest, and top billed, tax increase proposed in the plan. It's been a long year for President Biden since then.

RILA has long advocated for a competitive corporate tax rate, where all profitable companies contribute to the needs of the nation, and we quickly pointed out to key Congressional Democrats, if they are serious about tax fairness, a rate increase on industries already paying their fair share fails to meet that standard.

A key moderate voice in the Senate, Sen. Kyrsten Sinema of Arizona, agreed. When Senate Democrats and the President introduced their  tax framework, the corporate rate remained at 21 percent and they rightly included  a minimum tax for all large, profitable companies that paid little or no taxes. It seemed that with Sen. Sinema’s support the framework looked likely to pass by the end of last year.

But Senator Joe Manchin of West Virginia had other plans. Senator Manchin expressed reservations about the proposal and after conversations went south with the White House – declared Build Back Better dead in late December. For months since then, he has continued to express his concerns with the package – rising inflation, workforce participation, fiscal irresponsibility, and from time to time, not rolling back enough of the 2017 Tax Cuts and Jobs Act – sometimes referring to a 25 percent corporate tax rate.

It was in this environment President Biden gave his first State of the Union address, eager to reboot his domestic agenda. And while he is no longer Building Back Better, he is still eager to “build a better America” built on much of the same policies as before but with more emphasis on inflation and fiscal responsibility. And like before – the rhetoric was centered on making sure “corporations and wealthy Americans pay their fair share.” The difference is this time, the policy reflected it.

Gone was any mention of the corporate rate, and instead it was replaced with a pitch for the minimum tax, saying: “last year, 55 of the Fortune 500 companies earned $40 billion in profit and paid zero in federal taxes. Look, it’s not fair. That’s why I proposed a 15 percent minimum tax rate for corporations.”

Last year, 55 of the Fortune 500 companies earned $40 billion in profit and paid zero in federal taxes. Look, it’s not fair. That’s why I proposed a 15 percent minimum tax rate for corporations.

President Biden
While the fate of the President’s spending bill is still unknown, it is clear momentum is behind a minimum tax rather than a staight rate increase to pay for it. Sen. Manchin, in response to the State of the Union, for the first time in months, had an interview which gave the White House reason for optimism – calling tax reform the priority, not spending. Manchin proposed a considerable shift – that his colleagues choose one program to focus on and devote the other half of revenues raised to deficit reduction and fighting inflation.

While there is still a long way to go between now and any final bill, it does look like President Biden was able to resurrect negotiations over his spending package through the State of the Union, and along with it a tax fairness agenda – hopefully leaving a corporate rate increase in its dust. Stay tuned to RILA, we will let you know.
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