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Which Large U.S. Corporations Would Pay Biden’s 15% Minimum Tax?

Posted on Jan. 14, 2021

We estimate that 33 of the 100 largest U.S. companies could be subject to President-elect Joe Biden’s proposed corporate minimum tax and pay a total extra tax of $20 billion annually if that proposal were enacted as stand-alone legislation. Because the president-elect has proposed other significant tax increases on U.S. corporations, the effect of the proposed minimum tax would likely be much less.

The new tax would apply a minimum 15 percent tax rate on income reported on financial statements of corporations with at least $100 million of book income. According to reports, foreign taxes would be creditable, and carryovers (for years with negative minimum tax liability) would be allowed. (Prior analysis: Tax Notes Federal, Oct. 5, 2020, p. 109.)

In Table 1 we use the two years of company data after enactment of the Tax Cuts and Jobs Act to estimate minimum tax liability for each of the 100 largest publicly traded U.S. companies (ranked by market capitalization). Because the proposal allows carryovers and therefore removes the potentially taxpayer-adverse effects of volatile income, for all the estimates we use an average of two years of available data (rather than average estimates of individual years). On average, over the two years these companies had nearly $1 trillion of profit and paid in cash $166 billion of federal, state, and foreign income taxes.

Under the assumption that all foreign income taxes would be creditable under this new tax, foreign income taxes have equal effect as U.S. income taxes under the proposal. Our big assumption in making these estimates is that cash taxes paid in the two-year period are equal to current liability that would appear on federal, state, and foreign tax returns filed in the two-year period. Because of late payments, audit settlements, amended returns, and other mundane factors, this assumption doesn’t hold true, but the timing mismatches are likely to be less significant over longer periods. We also assume, based on casual review of the available data, that state income taxes equal 10 percent of total income tax liability.

Estimated minimum tax liability is equal to the excess, if any, of 15 percent of book income over 90 percent of reported income tax payments paid in cash. So, for example, Amazon.com Inc. reported in its latest two annual reports (for fiscal years ending December 31, 2019, and December 31, 2018) pretax book income of $13.98 billion and $11.25 billion and cash payments of income tax of $881 million and $1.18 billion. So average pretax book income for those two years was $12.62 billion. Applying the 15 percent rate yields potential minimum tax liability of $1.89 billion.

That potential liability is reduced by U.S. federal and foreign taxes paid. Average total income tax paid over the latest two years was $1.03 billion. The cash effective tax rate is 8.2 percent. We estimate U.S. and foreign income tax to be 90 percent of total income tax paid, which is $929 million. Subtracting $929 million from $1.89 billion yields an estimated minimum tax liability of $964 million.

Besides data shortcomings, estimates are highly uncertain because future economic conditions and legislation can change, and in some cases dramatically. For companies with substantial foreign operations, the proposed significant increase in U.S. tax on global intangible low-taxed income would negate the impact of the minimum tax. For all companies, the proposed increase in the corporate statutory rate from 21 percent to 28 percent would also substantially reduce the impact of the minimum tax.

Biden Boomerang

If those two proposed tax increases are enacted, the somewhat surprising and most likely unintended effect of the minimum tax would be to reduce tax incentives for domestic capital formation and job creation, including the research credit, expensing of capital investment, the preferential treatment of foreign-derived intangible income, and Biden’s own proposed “Made in America” tax credit.

Overall, the president-elect’s business tax proposals are a combination of complex takeaways and giveaways that overall raise taxes and reduce, and in some cases, eliminate current advantages of foreign relative to domestic investment. Biden could achieve largely the same goals in a far simpler way by keeping the corporate rate close to 21 percent, repealing the tax deduction for FDII, and moving to a worldwide system.

Table 1. Estimated Tax Burden of Proposed 15 Percent Minimum Tax on Book Income of 100 Largest U.S. Corporations — Based on Last Two Annual Reports (dollar figures in millions)

 

Latest Two Years of Before-Tax Book Income (annualized)

Cash Effective Tax Rate (ETR)

15% of Pretax Book Income

Estimated Federal and Foreign Income Tax

Estimated Minimum Tax Liability

Duke Energy Corp.

$3,585

-12.8%

$538

-$413

$950

Advanced Micro Devices Inc.

$351

-1.7%

$53

-$6

$59

American Tower Corp.

$1,536

-0.5%

$230

-$8

$239

NextEra Energy Inc.

$5,594

-0.1%

$839

-$7

$846

T-Mobile U.S. Inc.

$4,260

1.6%

$639

$70

$570

Fiserv Inc.

$1,319

2.4%

$198

$28

$170

AT&T Inc.

$21,671

2.5%

$3,251

$480

$2,770

Charter Communications Inc.

$2,059

2.8%

$309

$52

$257

Prologis Inc.

$1,831

3.3%

$275

$55

$220

Nvidia Corp.

$3,433

3.5%

$515

$107

$408

United Parcel Service Inc.

$5,836

4.4%

$875

$258

$617

Lockheed Martin Corp.

$6,540

6.9%

$981

$405

$576

Micron Technology Inc.

$5,016

6.9%

$752

$311

$441

U.S. Bancorp

$8,636

7.6%

$1,295

$588

$708

Adobe Inc.

$3,690

7.6%

$554

$281

$272

Amazon.com Inc.

$12,619

8.2%

$1,893

$929

$964

Berkshire Hathaway Inc.

$53,349

9.2%

$8,002

$4,396

$3,606

Bank of America Corp.

$33,669

10.1%

$5,050

$3,073

$1,977

AbbVie Inc.

$6,812

10.4%

$1,022

$635

$386

Lam Research Corp.

$2,511

10.4%

$377

$235

$141

JPMorgan Chase & Co.

$42,655

10.7%

$6,398

$4,125

$2,273

Goldman Sachs Group Inc.

$11,532

11%

$1,730

$1,268

$462

Intuitive Surgical Inc.

$1,391

12.1%

$209

$169

$40

Intel Corp.

$23,688

12.5%

$3,553

$2,665

$888

Salesforce.com Inc.

$845

12.6%

$127

$106

$21

Target Corp.

$3,933

13.6%

$590

$481

$109

Verizon Communications Inc.

$21,178

13.7%

$3,177

$2,898

$279

Chubb Ltd.

$4,953

14.3%

$743

$708

$35

Applied Materials Inc.

$3,718

14.3%

$558

$479

$79

FedEx Corp.

$1,162

14.4%

$174

$151

$24

Morgan Stanley

$11,269

14.6%

$1,690

$1,478

$212

Qualcomm Inc.

$6,600

14.6%

$990

$965

$25

Netflix Inc.

$1,644

16.2%

$247

$239

$7

Union Pacific Corp.

$7,744

16.7%

$1,162

$1,164

$0

Comcast Corp.

$16,119

17.3%

$2,418

$2,514

$0

CSX Corp.

$4,310

17.5%

$647

$753

$0

Facebook Inc.

$25,087

17.8%

$3,763

$4,472

$0

IBM Corp.

$10,754

17.8%

$1,613

$1,726

$0

Wells Fargo & Co.

$26,368

18.1%

$3,955

$4,290

$0

PayPal Holdings Inc.

$2,687

18.5%

$403

$497

$0

PepsiCo Inc.

$9,251

18.5%

$1,388

$1,715

$0

Visa Inc.

$14,337

18.5%

$2,151

$2,660

$0

Alphabet Inc.

$37,269

18.6%

$5,590

$6,937

$0

Apple Inc.

$66,414

18.6%

$9,962

$11,144

$0

Anthem Inc.

$5,527

19.4%

$829

$1,071

$0

Citigroup Inc.

$23,673

19.4%

$3,551

$4,140

$0

Thermo Fisher Scientific Inc.

$3,666

19.9%

$550

$730

$0

UnitedHealth Group Inc.

$16,963

20%

$2,544

$3,060

$0

Intuit Inc.

$2,040

20.1%

$306

$368

$0

Stryker Corp.

$2,459

20.3%

$369

$448

$0

MasterCard Inc.

$8,468

20.3%

$1,270

$1,545

$0

Amgen Inc.

$9,342

20.3%

$1,401

$1,900

$0

Bristol-Myers Squibb Co.

$5,472

20.6%

$821

$1,013

$0

Booking Holdings Inc.

$5,397

20.8%

$809

$1,009

$0

Honeywell International Inc.

$7,523

20.8%

$1,128

$1,409

$0

BlackRock Inc.

$5,583

20.8%

$837

$1,164

$0

Sherwin-Williams Co.

$1,671

20.9%

$251

$315

$0

Caterpillar Inc.

$7,817

21%

$1,173

$1,474

$0

McDonald’s Corp.

$7,917

21%

$1,188

$1,496

$0

Raytheon Technologies Corp.

$8,262

21.1%

$1,239

$1,567

$0

Automatic Data Processing Inc.

$3,094

21.2%

$464

$590

$0

Cisco Systems Inc.

$14,271

21.4%

$2,141

$2,746

$0

Zoetis Inc.

$1,746

21.6%

$262

$377

$0

Microsoft Corp.

$48,362

21.6%

$7,254

$9,405

$0

S&P Global Inc.

$2,806

21.7%

$421

$609

$0

3M Co.

$6,356

21.7%

$953

$1,241

$0

Costco Wholesale Corp.

$5,066

22.1%

$760

$1,008

$0

Coca-Cola Co.

$9,568

22.2%

$1,435

$1,911

$0

American Express Co.

$8,276

22.4%

$1,241

$1,665

$0

Charles Schwab Corp.

$4,705

22.6%

$706

$1,063

$0

Accenture PLC

$6,513

22.6%

$977

$1,326

$0

Deere & Co.

$3,986

22.9%

$598

$820

$0

Danaher Corp.

$3,299

23%

$495

$684

$0

Boeing Co.

$4,673

23.1%

$701

$973

$0

Nike Inc.

$3,844

23.2%

$577

$803

$0

Texas Instruments Inc.

$6,207

23.8%

$931

$1,328

$0

Home Depot Inc.

$14,636

23.9%

$2,195

$3,147

$0

Abbott Laboratories

$3,475

24%

$521

$752

$0

Walmart Inc.

$15,788

24.1%

$2,368

$3,419

$0

Colgate-Palmolive Co.

$3,383

24.4%

$507

$743

$0

Pfizer Inc.

$14,784

24.8%

$2,218

$3,660

$0

Johnson & Johnson

$17,664

24.8%

$2,650

$3,942

$0

Eli Lilly & Co.

$4,531

24.9%

$680

$1,129

$0

Oracle Corp.

$12,166

25.1%

$1,825

$2,754

$0

Philip Morris International Inc.

$10,272

25.2%

$1,541

$2,590

$0

Medtronic PLC

$4,626

26.3%

$694

$1,218

$0

Broadcom Inc.

$2,335

26.6%

$350

$559

$0

Cigna Corp.

$5,076

27.5%

$761

$1,398

$0

TJX Cos. Inc.

$4,290

28.3%

$643

$1,092

$0

Mondelez International Inc.

$3,145

29.3%

$472

$923

$0

Merck & Co. Inc.

$10,083

29.8%

$1,512

$2,700

$0

Procter & Gamble Co.

$10,952

30.2%

$1,643

$3,307

$0

Lowe’s Cos. Inc.

$4,509

30.4%

$676

$1,233

$0

Exxon Mobil Corp.

$25,505

32%

$3,826

$8,156

$0

Chevron Corp.

$13,056

36.6%

$1,958

$4,304

$0

Gilead Sciences Inc.

$6,480

38.5%

$972

$2,246

$0

Starbucks Corp.

$2,815

38.5%

$422

$1,085

$0

Becton Dickinson & Co.

$1,081

48.8%

$162

$474

$0

CVS Health Corp.

$5,202

49%

$780

$2,295

$0

Walt Disney Co.

$6,101

81.9%

$915

$4,499

$0

Totals and average cash ETRs

$995,709

16.7%

$149,356

$171,949

$20,631

Source: Author’s calculation using data from Yahoo Finance and from company annual reports.

 

[Editor's Note: This article originally appeared in the December 21, 2020, issue of Tax Notes Federal.]

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