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Proposed Corporate Minimum Tax Cause for Concern, Academics Say

NOV. 4, 2021

Proposed Corporate Minimum Tax Cause for Concern, Academics Say

DATED NOV. 4, 2021

DOCUMENT ATTRIBUTES

Authors
Hanlon, Michelle
Hoopes, Jeffrey L.
Institutional Authors
MIT Sloan School of Management
University of North Carolina at Chapel Hill
Subject Area/Tax Topics
Accounting periods and methods
Corporate taxation
Financial reporting
Legislation and lawmaking
Jurisdictions
United States
Tax Analysts Document Number
2021-42153
Tax Analysts Electronic Citation
2021 TNTF 214-21

November 4, 2021

The Honorable Ron Wyden
Chairman
U.S. Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC

The Honorable Mike Crapo
Ranking Member
U.S. Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Richard Neal
Chairman
U.S. House Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515

The Honorable Kevin Brady
Ranking Member
U.S. House Committee on Ways and Means
1139 Longworth House Office Building
Washington, DC 20515

Re: Corporate Profits Minimum Tax

Dear Chairmen Wyden and Neal, and Ranking Members Crapo and Brady:

We are writing to respectfully convey our concerns with the proposed Corporate Profits Minimum Tax currently under consideration as part of the Build Back Better Plan.

Financial accounting and tax reporting are intended for two different purposes. Financial accounting is meant to provide stakeholders of a company with information about the performance of the company and its managers. This is quite different than the purpose of taxable income, which as you know, is meant to raise revenue for public finance and includes rules to provide incentives and disincentives for certain behaviors (e.g., investment). Thus, it is not surprising that the two income numbers can be very different from each other. The Financial Accounting Standards Board (FASB) is set apart from the government in order to be free from lobbying and ideally arrive at the most appropriate financial accounting standards.

Using financial accounting as part of the tax base, for example, as in the Corporate Profits Minimum Tax, carries with it many risks. The first is that FASB will in effect have some control over the U.S. tax base. A second risk, conversely, is that the U.S. Congress might exert more influence over the FASB. The potential politicization of the FASB will likely lead to lower quality financial accounting standards and lower quality financial accounting earnings. A third risk is that companies will alter their reporting and report lower financial accounting earnings than they would in the absence of this tax. This type of behavior is documented in academic research that examines previous experiences of including financial accounting in the tax base and/or increasing conformity of financial accounting and taxable incomes. Such behavior will lower the quality of financial accounting earnings, will lead to less information provided to the capital markets from financial accounting, and result in less efficient capital allocation.

Finally, the use of financial accounting income as part of the alternative tax base injects needless complexity into the tax code. One primary motivation for including financial accounting income in the tax base is the apparent simplicity of it — it's a ready-made number that already exists. However, using financial accounting income will actually be quite complicated because of the different purposes of the measures. For example, the entities included on a consolidated financial statement are different than those included on a consolidated tax return (e.g., a difference in treatment exists for domestic entities owned between 50% and 80%, those owned between 20% and 50%, and those owned less than 20%; the treatment of non-U.S. entities is also quite different).

We respectfully submit that financial accounting income should not be used as an alternative tax base. Rather than risking the degradation of the FASB, lower quality financial reporting by firms, less efficient capital markets, and a needlessly complicated tax system, it would be cleaner and simpler to just fix the tax code if there are perceived problems with the tax system.

Sincerely,

Michelle Hanlon
MIT
Professor of Accounting,
Howard W. Johnson Professor
Co-Editor, Journal of Accounting and Economics
Phone: 617-253-9849
Email: mhanlon@mit.edu

Jeffrey L. Hoopes
University of North Carolina at Chapel Hill
Associate Professor
Harold Q. Langenderfer Scholar of Accounting
Research Director, UNC Tax Center
Phone: (919) 962-0284
Email: hoopes@unc.edu

The following 264 accounting/tax scholars co-sign this letter (affiliations are for identification purposes only; this letter represents the views of the individual signatories only).

Name	Institution
Douglas Shackelford	University of North Carolina at Chapel Hill
Petro Lisowsky	Boston University
Cristi Gleason	University of Iowa
S.P. Kothari	MIT
Hailey Ballew	Rice University
Bradford Hepfer	Texas A&M University
John D. Kepler	Stanford University, Graduate School of Business
Edward Maydew	University of North Carolina at Chapel Hill
Gary McGill	University of Florida
David Kenchington	Arizona State University
Michelle H. Yetman	University of California, Davis
Mark Lang	University of North Carolina at Chapel Hill
Nemit Schroff	MIT
Charles C.Y. Wang	Harvard Business School
Patrick Kielty	The Ohio State University
Elizabeth Blankespoor	University of Washington
Randolph P. Beatty	University of Southern California Marshall School of Business
Govind Iyer	University of North Texas
John (Xuefeng) Jiang	Michigan State University
Joao Granja	The University of Chicago
Kyle Peterson	University of Oregon
Miles A. Romney	Florida State University
Rob Whited	North Carolina State University
Fabrizio Ferri	University of Miami
Ted Christensen	University of Georgia
John Barrick	Brigham Young University
Scott Emett	Arizona State University
Dane M. Christensen	University of Oregon
Patrick E. Hopkins	Indiana University
Ryan Wilson	University of Oregon
Katharine Drake	University of Arizona
Lucile Faurel	Arizona State University
William J. Mayew	Duke University
Carol Marquardt	Baruch College, City University of New York
Ed deHaan	University of Washington
Shane Heitzman	University of Southern California
Michelle Hutchens	University of Illinois
Suhas A. Sridharan	Emory University
Alex Nekrasov	University of Illinois Chicago
Bret A. Johnson	George Mason University
Brad A. Badertscher	University of Notre Dame
Robert Yetman	University of California, Davis
Stephen Glaeser	University of North Carolina at Chapel Hill
Nicole Johnson	University of Oregon
Kai Du	Penn State University
Chase Potter	Washington State University
Thomas A. Buchman	University of Colorado
Brady Twedt	University of Oregon
Mani Sethuraman	Cornell University
Elia Ferracuti	Duke University
Erik Beardsley	University of Notre Dame
Bradley Blaylock	University of Oklahoma
Marilyn Johnson	Michigan State University
Ilia Dichev	Emory University
Dain Donelson	University of Iowa
Daniel L. Jensen	The Ohio State University
Anwer S. Ahmed	Texas A&M University
Quinn Swanquist	The University of Alabama
Zhonglan Dai	University of Texas at Dallas
Judson Caskey	UCLA Anderson School of Management
Robbie Moon	Georgia Tech
Yong Yu	University of Texas at Austin
Nicholas J. Hallman	University of Texas at Austin
Scott Asay	University of Iowa
Bridget Stomberg	Indiana University
Devin M. Shanthikumar	University of California, Irvine
Stephen G. Ryan	New York University
T. Jeffrey Wilks	Brigham Young University
Spencer Anderson	University of Illinois
Frank Murphy	University of Connecticut
Daniel Wangerin	University of Wisconsin-Madison
Nick Seybert	University of Maryland
F. Dimas Peña Romera	Arizona State University
Nathan Goldman	North Carolina State University
Dawn Matsumoto	University of Washington
Luo Zuo	Cornell University
Ties de Kok	University of Washington
Jon N. Kerr	Ohio State University
Matthew Erickson	Virginia Tech
Crystal Finkelstein	University of Washington
Dan Lynch	University of Wisconsin-Madison
Cynthia Jeffrey	Iowa State University
Thomas G. Ruchti	Carnegie Mellon University
Xu Jiang	Duke University
Donal Byard	Baruch College, CUNY
Matthew A. Cobabe	Virginia Tech
Brian Williams	Indiana University
Anne Ehinger	Florida State University
T.J. Atwood	University of Arkansas
Matthew Baugh	Arizona State University
Stephen Stubben	University of Utah
Stephan E. Sefcik	University of Washington
Joshua Madsen	University of Minnesota
Sarah Shaikh	University of Washington
Shane Dikolli	University of Virginia Darden School of Business
Sattar Mansi	Virginia Tech
Jaron Wilde	University of Iowa
Daniel Taylor	University of Pennsylvania
Thomas C. Omer	University of Nebraska-Lincoln
Matt Glendening	University of Missouri
Constance D. Weaver	Texas A&M University
Matthew Lyle	Northwestern University
Lynn Rees	Utah State University
James Omartian	University of Michigan
Anne M. Magro	George Mason University
Charles M. C. Lee	Stanford University
Richard Price	University of Oklahoma
Michael Eames	Santa Clara University
Rachel Martin	Utah State University
Wuyang Zhao	The University of Texas at Austin
Pervin Shroff	University of Minnesota
John J. Maher	Virginia Tech
Jeff Paterson	Florida State University
Igor Vaysman	Baruch College, CUNY
Kevin Markle	Michigan State University
Jeremy Douthit	University of Arizona
Rebecca Lester	Stanford University, Graduate School of Business
Frank Gigler	University of Minnesota
Linda Vincent	Northwestern University Kellogg School of Management
Nicholas Guest	Cornell University
Jessica Watkins	University of Notre Dame
Christopher Williams	University of Michigan
Harry Z. Davis	Baruch College, CUNY
Anna Costello	The University of Chicago
Jimmy Downes	University of Nebraska – Lincoln
Andrew Belnap	University of Texas at Austin
Richard Toolson	Washington State University
Brant Christensen	University of Oklahoma
Ted Mock	University of California, Riverside
Dhananjay Nanda	University of Miami
Jeff Gramlich	Washington State University
John R. M. Hand	University of North Carolina at Chapel Hill
Yongtae Kim	Santa Clara University
David W. Wright	University of Michigan
Frances L Ayres	University of Oklahoma
Clive Lennox	University of Southern California
K Ramesh	Rice University
Gil Sadka	University of Texas at Dallas
Leslie Robinson	Tuck School of Business at Dartmout
Ajay Maindiratta	New York University
Lillian F. Mills	University of Texas at Austin
Brandon Gipper	Stanford University Graduate School of Business
Devon Erickson	Utah State University
Jeri Seidman	McIntire School of Commerce, University of Virginia
Jung Ho Choi	Stanford Graduate School of Business
Jan Barton	Emory University
Sean McGuire	Texas A&M University
Jed Neilson	Penn State University
Richard Morton	Florida State University
Thomas R Dyckman	Cornell University
James Chyz	University of Tennessee
Jeffrey Pittman	Virginia Tech
Robert E Malcom	The Pennsylvania State University
Jim Naughton	University of Virginia
Joshua Lee	Brigham Young University
Kathryn Brightbill	Utah State University
Jing Huang	Virginia Tech
Justin Hopkins	Darden Graduate School of Business at the University of Virginia
Thomas J. Linsmeier	University of Wisconsin-Madison
Jim Seida	Notre Dame
Stanimir Markov	University of Texas at Dallas
Terry L. Neal	University of Tennessee
Tracy J. Noga	Bentley University
Troy K Lewis	Brigham Young University
Steven Smith	Brigham Young University
Eva Labro	University of North Carolina at Chapel Hill
Eric Lohwasser	Colorado State University
Bradley P. Lindsey	Utah State University
Theo Sougiannis	University of Illinois
Paul E. Fischer	The Wharton School, University of Pennsylvania
Mark W. Nelson	Cornell University
Dennis Lassila	Texas A&M University
Leslie Hodder	Indiana University
Melissa Martin	University of Illinois-Chicago
Santhosh Ramalingegowda	University of Georgia
Catherine Shakespeare	University of Michigan
Dan Givoly	The Pennsylvania State University
Michael Durney	University of Iowa
Todd Thornock	University of Nebraska-Lincoln
Zahn Bozanic	Florida State University
Courtney Knoll	University of North Carolina at Chapel Hill
Jon S. Davis	University of Illinois at Urbana-Champaign
Long Chen	George Mason University
Sanjay Gupta	Eli Broad College of Business, Michigan State University
K. Kelli Saunders	University of Nebraska-Lincoln
Eric Yeung	Cornell University
Hemang Desai	Southern Methodist University
Jeffrey J. Burks	University of Notre Dame
Robert Bushman	University of North Carolina at Chapel Hill
Mark DeFond	University of Southern California
Greg Waymire	Goizueta Business School of Emory University
Ben Lourie	University of California, Irvine
Emanuel Zur	University of Maryland, Smith School of Business
Edward Owens	University of Utah
George Batta	Claremont McKenna College
Lynn Dikolli	UNC Chapel Hill
Kalin S. Kolev	Baruch College – CUNY
Iman Sheibany	University of Utah
Robert Magee	Northwestern University (Emeritus)
Lisa Kutcher	Colorado State University
Michael Donohoe	University of Illinois at Urbana-Champaign
Fei Du	University of Illinois
Joseph Pacelli	Harvard Business School
Jason Xiao	University of Rochester
Alexander Woods	William and Mary
Robert Davidson	Virginia Tech
Emily Griffith	University of Wisconsin-Madison
John J. Wild	University of Wisconsin-Madison
Andrew Schmidt	North Carolina State University
Jana Raedy	University of North Carolina at Chapel Hill
Jeremy Michels	University of Pennsylvania
Nikki Skinner	University of Georgia
Michele Mullaney	Indiana University
Jonathan Shipman	University of Arkansas
Stephen A. Zeff	Rice University
R. William Snyder	George Mason University
Yehuda Davis	Yeshiva University
Eldar Maksymov	Arizona State University
John Treu	West Virginia University
E. Scott Johnson	Vanderbilt University
Matthew Ege	Texas A&M University
Korok Ray	Texas A&M University
Phillip Stocken	Dartmouth College
Steven Utke	University of Connecticut
Catherine Schrand	University of Pennsylvania Wharton School
Amanda Beck	Georgia State University
Sarah Stuber	Texas A&M University
Zackery Fox	Texas A&M University
Haiwen (Helen) Zhang	University of Minnesota
Jacqueline S Hammersley	University of Georgia
Joe Weber	MIT
Diana Falsetta	University of Miami

DOCUMENT ATTRIBUTES

Authors
Hanlon, Michelle
Hoopes, Jeffrey L.
Institutional Authors
MIT Sloan School of Management
University of North Carolina at Chapel Hill
Subject Area/Tax Topics
Accounting periods and methods
Corporate taxation
Financial reporting
Legislation and lawmaking
Jurisdictions
United States
Tax Analysts Document Number
2021-42153
Tax Analysts Electronic Citation
2021 TNTF 214-21

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