Biden's Corporate Alternative Minimum Tax (AMT) Plan

Democratic presidential nominee Joe Biden has released a series of tax proposals in recent weeks. One of those proposals would create a new corporate alternative minimum tax (AMT) based on the “book income” of corporations. The tax would apply a minimum 15% rate on the income reported on corporate financial statements—also known as book income—for corporations with at least $100 million in book income. Generally, taxable income varies from book income because of the deductions, credits and tax preferences available to corporations and other entities when calculating taxable income. Book income is generally income as presented to investors and financial authorities. Calculating this income is subject to its own set of accounting rules. Biden’s proposed tax would replace the corporate AMT, which was eliminated by the 2017 tax reform legislation.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the new corporate AMT proposal.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: Let’s start with the bottom line—big corporations are not paying their fair share. They’re able to manipulate taxable income in any number of ways to avoid paying the taxes this country needs to get back on its feet and escape our growing deficit. The 2017 tax reform legislation only magnified this impact by eliminating the corporate AMT and slashing corporate tax rates. It’s time we did something to hold these corporations accountable—especially in the wake of one of the largest across-the-board corporate bailouts in history.

Byrnes: There’s nothing wrong with using available deductions, credits and tax rules to minimize taxable income. That’s why Congress passes these laws. They want to encourage businesses to grow and create jobs to help our economy. This law would unfairly punish corporations for using the law itself to legally create greater liquidity for business to grow.

____

Bloink: Corporations have an incentive to make book income that’s reported on financial statements as high as possible, so that shareholders think they’re doing a good job. We can only guess at the internal revenue manipulations corporate executives use to arrive at higher book income levels. On the flip side, they don’t want to be taxed on these amounts. This system is patently unfair—big business can’t have it both ways. Biden’s plan would even the score.

Byrnes: To punish corporations for using the law as it’s designed is what’s unfair. The tax code allows business owners to reduce taxable income in order to increase liquidity. We all know that small businesses are suffering. Acting now to punish them for their success should be considered out of the question.

____

Bloink: The new law would only apply to the largest of corporations—those with over $100 million in book income. It has nothing to do with small business. Imposing an AMT on the amount of income that big businesses actually earn is a key way to hold them accountable for their fair share. The tax loopholes have to stop and this proposal goes a long way toward closing the corporate loopholes.

Byrnes: For me, the bottom line is that book income is a number that’s totally unrelated to the tax code. This law would add a level of complexity that we don’t need in our tax code. This law would give business owners perverse and conflicting incentives that run contrary to the basics of running a business efficiently in these challenging times. We need to give business owners all the help that we can so that they can get back on their feet.