The minimum tax will apply to companies making at least $1 billion in profits, which essentially means large publicly traded companies. It also means that anyone can consult publicly available company financial statements to determine which ones will be affected and by how much. So that’s what I did. Specifically, to get closer to how the bill works, I looked for companies with an average adjusted pre-tax profit of at least $1 billion in their previous three fiscal years (the adjustment is meant to exclude unusual and non-recurring items that are not likely to affect future profits).
Unsurprisingly, I found that the minimum tax will have an impact on a relatively small number of businesses. I counted 368 companies with such high revenues, and of those, 127 paid taxes at a rate of less than 15% last year. All but a handful are among America’s 500 largest companies by market value, and most are household names, including tech titans Apple Inc. and Microsoft Corp., electric car maker Tesla Inc., pharmaceutical companies Eli Lilly & Co. and Pfizer Inc., and private equity powerhouse Blackstone Inc.
They can also all afford to pay more taxes. Even after taking into account the shortfall – that is, the difference between the taxes they paid last year and what they should have had by applying a minimum tax of 15% – the large majority would still have made well over $1 billion in profits last year, and the others are not far behind. In fact, the median revenue shortfall as a percentage of adjusted pre-tax income was just 6.6% for all businesses last year. The minimum tax therefore does not seem to be a heavy burden.
Yet just because companies can absorb higher taxes doesn’t mean they will. And with many Americans struggling to afford basic necessities amid the highest inflation in four decades, now would be a particularly difficult time for businesses to raise prices or cut wages. But history does not support the idea that higher corporate taxes necessarily lead to higher prices or lower wages.
There has been no correlation between inflation and the rate at which businesses pay taxes, based on available data dating back to 1947. Federal business tax revenues as a percentage of pre-tax income have steadily declined over the past seven decades to reach 9% 48% in the early 1950s despite varying inflation environments along the way, as measured by year-to-year changes in the consumer price index. (For statistics aficionados, the correlation is a negative 0.07.) In fact, during most brief periods when the tax rate increased, inflation remained low or declined.
There has also been no relationship between the tax rate and annual wage growth since 1979 (the correlation here is negative at 0.08). Real wages have only increased by 0.2% per year over the past four decades, even as the tax rate has fallen from 23% to 9% over the same period. And again, during the brief periods when the tax rate increased, wage growth was either flat or above normal. During one of these periods, from 1982 to 1987, real wages increased by 1.1% per year, more than five times the long-term growth rate over the entire period.
Even if businesses were to raise prices to offset higher taxes, it probably wouldn’t have much of an impact on the everyday goods and services that people need most. Companies in the energy, real estate and consumer staples sectors, which include food, apparel and personal products, accounted for just 14% of all loss-making companies last year – only 18 in total. The two notable exceptions are utilities and health care, which collectively account for one-third of loss-making businesses, but that’s still only a fraction of all U.S. businesses.
Consider that the overall shortfall last year would have been around $50 billion. Added to the $280 billion that businesses paid to the federal government last year, tax revenue as a percentage of revenue for all businesses would have increased by 1 percentage point, from 9% to 10%. Not only is this unlikely to have a significant impact on prices or wages, but it is also a very modest increase, especially when compared to the energy and healthcare benefits. that the minimum tax will help pay.
The public often has to rely on sharp political experts to gauge the impact of government initiatives such as the Cut Inflation Act. But when it comes to the corporate minimum tax, the impact on business is there for all to see, if barely noticeable.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management company.
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