One of the biggest accomplishments of the Biden-Harris administration was enactment of the Inflation Reduction Act (IRA), signed into law on August 16, 2022. The IRA introduced some of the most significantly positive reforms to tax policy and tax administration in recent American history. These included imposing a minimum corporate tax on the nation’s biggest firms, some of which now go tax free in certain years; restoring the depleted funding of the IRS so it can better catch rich tax cheats; and creating a tax on the wasteful practice of corporate stock buybacks. Altogether the IRA’s tax reforms are anticipated to raise nearly half a trillion dollars over their first 10 years. 

Corporate Stock Buyback Tax

Rather than reinvesting earnings in their businesses and workers, publicly traded corporations often use profits to repurchase their own shares, artificially boosting their stock price to benefit wealthy investors. The Inflation Reduction Act imposed a modest 1% stock buyback tax to help curb this harmful corporate behavior and raise significant revenue to fund public services and lower public debt. 

Stock buybacks surged after President Trump and congressional Republicans pushed through trillions of dollars in corporate-tax breaks in their 2017 tax law. In the five years between the enactment of the Trump-GOP tax law and the Inflation Reduction Act’s stock buyback tax, mega-corporations spent over $4 trillion repurchasing their own shares while simultaneously choosing to raise prices on everyday consumers.

The Congressional Budget Office (CBO) originally projected the stock buyback tax would raise $74 billion over the next decade. But another budget scorekeeper has recently forecast much more revenue. Even though the tax raised considerably less than expected in the first year of implementation, the Office of Management and Budget (OMB) now estimates that the buyback tax will start raising double the amount the CBO projected each year starting in 2025. By 2029, OMB estimates the stock buyback tax will have generated a total of $107 billion of new revenue.

Source: Analysis by Americans for Tax Fairness

Talking Points

• When a big corporation buys back its own stock, CEOs and other wealthy shareholders get richer at the expense of workers, communities and useful business investment.
• Studies have shown that stock buybacks are associated with wage stagnation, layoffs, lower productivity growth, and reduced innovation. The Biden-Harris administration’s stock buyback tax discourages the practice,encourages more socially useful ways to spend corporate cash and raises revenue to support working families.
• Buybacks help wealthy CEOs and other investors dodge taxes, while the buyback tax raises tax revenue from rich individuals. The rise in stock price created by a buyback is not taxed unless the stock is sold. However, if a corporation rewards its shareholders with cash payments called dividends, those are taxed in the year they are received. With the stock buybacks tax, corporations are expected to pay out more in dividends, raising more revenue from the wealthiest Americans. 
• The stock buybacks tax increases U.S. taxes on rich foreign investors. Foreign shareholders in American companies do not pay U.S. capital gains tax when they sell stock that’s gone up in value. But they are taxed on the dividends a stock buyback tax encourages.
• Stock buybacks are out of control and need to be curbed by the stock buybacks tax. Corporations have been on a buyback frenzy in recent years, intensifying since the 2017 Trump-GOP tax cuts. Rather than investing in their workers and communities, big corporations used the windfall from the Republican tax cuts to buy back record-breaking amounts of their own shares.

Fully Funding the IRS to Crack Down on Wealthy & Corporate Tax Cheats

Wealthy individuals and big corporations have been avoiding hundreds of billions of dollars in federal taxes every year because the Internal Revenue Service (IRS) has lacked the resources to catch them. After years of intentional underfunding by congressional Republicans, the Inflation Reduction Act made a historic $80 billion investment in the IRS to both beef up enforcement against rich tax evaders and improve customer service for honest taxpayers. This roughly 50% increase in the IRS base budget (currently about $14 billion a year) will allow it to replace tens of thousands of employees expected to retire or depart over that period, as well as hire new employees with specialized knowledge of the complex schemes used by the rich and corporations to evade taxes. 

The Congressional Budget Office projected that this new IRS funding would increase revenue by $180 billion over the next decade. This was almost certainly an under estimate given CBO’s narrow scoring parameters. Even after Congressional Republicans rescinded $20 billion of the special funding as part of the 2023 debt-ceiling agreement, the IRS still expects to raise up to $560 billion thanks to increased audit capacity, technological improvements, and the revenue from potential tax cheats deterred by news of increased enforcement. 

Talking Points

• The highest-income 1% of American households are estimated to commit over a quarter (28%) of all tax evasion, failing to pay each and every year roughly $160 billion in taxes they legally owe. 
• Between 2010 and 2021, congressional Republicans led the effort to cut the IRS budget by 20% in inflation-adjusted terms. This led to a 31% reduction in enforcement staff in general and a 40% cut in revenue agents specifically. 
• Less enforcement personnel predictably led to less scrutiny of the highest-income taxpayers and huge losses of revenue to tax evasion. Audits of corporations with over $1 billion of income dropped by 87% from 2010-20 to an historic low, and in 2020 for the first time millionaires were audited at a lower rate than working families receiving the EITC. 
• The IRA’s investment in tax enforcement is already paying off: in 2023-24, the IRS collected over a billion dollars from deadbeat millionaires; opened cases on over 100,000 other millionaires who haven’t even filed taxes for seven years or more; and started the process of collecting almost $30 billion from Microsoft in back taxes.
• Meanwhile, the IRS is answering taxpayer phone calls in three minutes instead of 30; has cleared a backlog of millions of unprocessed returns; and initiated a successful free, online filing system called Direct File. 
• If all of the program improvements the IRS has proposed in its Strategic Operating Plan are implemented, its full IRA funding is restored to them, and revenue gains are defined more broadly, the agency estimates it could raise more than $850 billion in additional revenue over the period 2024-34. 

15% Minimum Tax on Billion-Dollar Corporations

Profitable corporations often pay so little in tax because they are allowed to figure their income in two different ways. When calculating their “taxable income” reported to the IRS, firms use as many credits, deductions, exemptions and other subtractions as possible to reduce their stated profits and thus their resulting tax bill. When calculating their “book income” reported to Wall Street, corporations pump up the numbers as high as possible to attract investors and raise the company’s stock price.

The Inflation Reduction Act took a big step in addressing this disparity by enacting a 15% Corporate Alternative Minimum Tax (CAMT). Starting in 2024, corporations with at least $1 billion in annual profits over the previous three years have had to calculate their income in two ways and pay taxes on whichever amount is higher. Either the statutory 21% tax rate based on taxable income as reported to the IRS, or a 15% minimum tax rate that will be applied to their book income, saving a handful of deductions and credits. 

While the new CAMT is estimated to only impact between 90 to 150 mega-corporations annually, it is projected to generate $222 billion of additional revenue over the next decade. This policy could have raised significantly greater revenue from more corporations if it were not for the demands of Senator Sinema, who carved out huge loopholes for the private equity and telecommunications industries. We are hopeful that a future congress will rectify this error and continue to strengthen the CAMT as well as raise the rate to 21% as proposed in President Biden’s most recent budget.

Talking Points

• The CAMT ensures billion-dollar corporations no longer pay a lower tax rate than average Americans, including nurses, firefighters, and teachers. Year after year these corporations report large profits to shareholders but pay a lower tax rate than the 14.9% average federal income tax rate paid by individual taxpayers.
• The CAMT was needed because in the five years after the passage of the Trump-GOP tax law at least 87 profitable corporations paid an effective tax rate of less than 10% on nearly $1 trillion of profits. Some of America’s biggest corporations – T-Mobile, Duke Energy, and AmerisourceBergen – went five years without paying a single dollar of federal income tax despite making billions in profits. 
• Despite phony Republican claims that the middle-class will pay more in taxes, no one making less than $400,000 will pay one penny in additional taxes under the Inflation Reduction Act, as confirmed by the Washington Post fact checker and other sources.
• TheCAMT is particularly needed to curb tax dodging by some prescription drug, high tech and apparel corporations, which avoid taxes by manufacturing their drugs, phones and shoes abroad and by stashing their profits in tax havens, will start paying closer to their fair share. 
• For decades, Republicans have made false claims that tax cuts for corporations will trickle-down to workers and the rest of us. They promised that employers would give workers big wage increases after the Trump-GOP tax cuts became law. Corporations got their huge tax cut and after-tax profits soared, but workers didn’t get their share. Now Republicans are saying this legislation will raise taxes on the middle-class. That’s a lie.