by Paige Terryberry
Senior Analyst for Fiscal Policy, John Locke Foundation
The “Inflation Reduction Act” would be a disaster for many. Taxes would rise for nearly every income group, devastating low-income households in particular.
One of the most harmful aspects of the bill is the new corporate minimum tax, often called the “book tax.” The book tax refers to the taxes on book income, the amount publicly shown on a company’s financial statements to shareholders for a given year.
Politicians on the left would have you believe many big corporations dodge laws to avoid paying taxes. However, similar to individuals taking conventional tax deductions, companies do not pay taxes on every dollar they earn. Book income (determined by accounting standards) and taxable income (determined by tax laws) measure different things.
Businesses follow legitimate rules to calculate their taxable income in a way that encourages future investments and savings.
The latest tax and spend bill in Congress hopes to squeeze $313 billion from corporations by implementing a minimum book tax, nearly half of which would come from manufacturers.
Chief economist for the National Association of Manufacturers Chad Moutray said the tax impact would be “swift and devastating to manufacturers and the economy as a whole.”
As a percentage of income, however, the real estate sector is hit the hardest, followed by mining and other industries, transportation, and construction, according to new analysis from the Tax Foundation.
The Tax Foundation writes: “These industries are especially heavily impacted because they are at the intersection of the different book-tax gaps targeted by the book minimum tax.”
Following implementation of the new minimum book tax, mining and manufacturing will see the highest effective tax rates, 24.1 and 23.4 percent respectively. The utility and agriculture sectors will see the largest tax increases.
The book tax is another example of the Biden Administration and Congressional Democrat’s punitive measures on the productive.
The common denominator in the affected sectors is their essential role in the economy.
Many of these sectors represent our competitive edge in technology. The bill would undermine critical sectors at a time when inflation, supply chain issues, and labor shortages plague them.
President Joe Biden insisted, “my economic plan has prioritized American manufacturing and resilient supply chains.” Just weeks later, he callously advocates for taxes that would devastate the sector.
With key sectors damaged and taxes on families making less than $100,000 rising by $5.8 billion in just one year, one has to wonder, who will the “Inflation Reduction Act” benefit? The unfortunate, but most likely answer: politicians and unions.