How Biden’s Last Corporate Tax Aims to Transform Business Taxation
The Biden administration has taken another major step in its effort to enforce a corporate alternative minimum tax (CAMT), aimed at ensuring that America’s largest and most profitable companies pay their fair share.
On September 12, 2024, the US Treasury Department released a 603-page rulebook that details how CAMT will work, marking a significant milestone in the tax’s implementation.
The tax, which was introduced as part of the 2022 Inflation Reduction Act, targets corporations with at least $1 billion in annual profits. These companies are now required to pay a minimum of 15% on their financial statement income, preventing them from using tax breaks and loopholes to reduce their payments.
Although the concept may sound simple—making profitable companies pay at least 15% in taxes—the reality is far more complex. This new tax system will run parallel to the regular corporate tax regime, requiring companies to pay whichever is higher. The aim is to tackle corporate tax avoidance, but as the newly released regulations reveal, the implementation of CAMT is proving to be anything but straightforward.
The Treasury Department projects that around 100 companies will be subject to CAMT, and that the tax will generate approximately $250 billion in revenue over the next decade. Without this new tax, these companies would pay an average rate of 2.6%, according to Treasury officials.
Some of the most profitable companies, including Blackstone, KKR, Whirlpool, Duke Energy, and Ally Financial, have already made tax payments under the new regime for 2023, but their final liabilities may change as they adjust to the newly clarified rules.
Corporate executives and tax experts have been anticipating these regulations for months, and they arrive with a mix of clarity and complexity. On one hand, the new rules explain key definitions such as “adjusted financial statement income”, the metric used to calculate whether a company meets the 15% minimum. On the other hand, they raise fresh challenges, especially in determining what counts as income and how tax credits and deductions will interact with the new tax regime.
“The ability to use accountants and lawyers to reduce tax bills down to zero gives billion-dollar corporations a competitive advantage over smaller businesses,” noted Wally Adeyemo, the Deputy Treasury Secretary, in defense of CAMT.
However, he acknowledged the tax’s complexity, with some rules set to take effect in 2024 and others dependent on final regulations yet to be issued.
Passed as part of the Inflation Reduction Act in 2022, the CAMT was born out of negotiations with key Senate Democrats, including Kyrsten Sinema of Arizona and Joe Manchin of West Virginia. Both opposed more direct changes to the corporate tax rate and international tax rules, making CAMT the common ground that allowed the broader legislation to move forward.
Given its narrow passage—requiring Vice President Kamala Harris to cast the tie-breaking vote—the law reflects the intricate balance of power in Congress at the time. It also reveals the limitations of bipartisan support for corporate tax reforms, with the CAMT being passed without a single Republican vote.
As of now, CAMT is set at 15%, but President Biden has made it clear that he wants to raise the rate to 21% and push the regular corporate tax rate from 21% to 28%. However, given the current political landscape, such changes are unlikely to happen during his presidency. Harris, now the Democratic presidential nominee for 2024, could revive these proposals if elected.
While the CAMT aims to address the longstanding issue of corporate tax avoidance, many companies are concerned about the burdens it places on them. Compliance costs are expected to rise, especially as the rules get into more granular and, as some executives put it, impenetrable territory.
For instance, some companies worry about the risk of double-counting income or being unfairly impacted by split-offs and other financial transactions. A split-off, for example, allows shareholders to choose between keeping their shares in a parent company or exchanging them for shares in a new subsidiary. While this might generate gains in a company’s financial reports, it may also subject them to CAMT under the new rules, raising concerns about accurate tax assessments.
“I think, unfortunately, it’s going to add to the complexity of what needs to be reported, meaning how granular the information needs to be,” said Kevin Ainsworth, a principal at accounting firm BDO.
This concern is shared across industries, as many corporations are now facing the reality that complying with CAMT will require significant adjustments in financial reporting.
Despite the concerns raised by the corporate sector, the Biden administration remains steadfast in its commitment to CAMT, framing it as a crucial tool for promoting tax fairness and reducing income inequality. Treasury Secretary Janet Yellen stressed the importance of the new tax, stating that it “helps level the playing field for small businesses, who do not have access to expensive tax lawyers and advisers.”
While the regulations provide more clarity, the complexity of CAMT is unlikely to be fully resolved anytime soon. The government has scheduled a public hearing on the matter for January 16, 2025, with the possibility of further revisions before the final regulations are implemented.
In the meantime, companies are left navigating the intricate tax landscape, facing a combination of uncertainty and increased scrutiny. For the Biden administration, CAMT represents a significant policy achievement, but one whose long-term impact—both on corporate America and the broader economy—remains to be seen.
President Biden may not see his full vision realized before leaving office, but the groundwork has been laid for future administrations to build upon.
As the conversation continues, the fate of corporate tax policy may well depend on the outcome of the 2024 presidential election, with both Kamala Harris and the Republican contender likely to shape how CAMT evolves in the years ahead.
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