Businesses in the United States are set to face a bigger federal tax burden in 2023 due to Democrat policies and the phasing out of Republican tax overhauls, combined with an expected raise in corporate minimum tax for billion-dollar companies.
The Inflation Reduction Act (IRA) included several changes due to which businesses will face higher taxes. In addition, some of the temporary provisions in the 2017 Tax Cuts and Jobs Act (TCJA) enacted under the Trump administration are set to get phased out in 2023. The Joint Committee on Taxation estimates that the total effect of these two developments would result in additional tax increases of $115 billion for businesses.
“On the impact of tax increases in a recessionary period, we are highly concerned,” Chris Netram, the managing vice president of tax and domestic economic policy at the National Association of Manufacturers (NAM), said to Fox.
“Some of the items that have already taken effect, that Congress failed to reverse at the end of last year, are causing a lot of pain for our members.”
Two tax policies under the IRA are expected to hit businesses hard: the stock buyback tax and the new corporate minimum tax. Both these provisions came into effect at the beginning of 2023.
Democrat Tax Burdens
The new corporate minimum tax charges a 15 percent levy on American businesses that make more than $1 billion in book income in a year for three consecutive years. As a result, the average effective tax rate on corporate income is expected to rise from 18.7 percent to 19.3 percent.
Around 200 of America’s biggest companies with more than $1 billion in profits are likely to be affected by the corporate minimum tax. They usually pay less than the 21 percent tax typically charged on firms. In addition, the minimum tax rule will also apply to foreign firms that generate over $100 billion in book income in the United States.
Companies that meet the conditions under this new tax policy must calculate their taxes in two ways: under the 15 percent corporate minimum tax rule and the 21 percent income tax rule. They must then pay the higher tax. Businesses operating in sectors like mining and real estate are expected to be the hardest hit by this change.
The stock buyback tax levies a 1 percent charge on publicly traded firms when they repurchase stocks. Some experts estimate that this tax will end up forcing businesses to maintain more cash on their company books when the money could have gone for investment.
Strategists at UBS calculate the two taxes will be a drag on company earnings this year, estimating a 1.5 percent decrease per share in firms listed on the benchmark S&P 500 Index.
