Biden’s minimum book tax could damage private pensions: here’s how

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President Biden The board has approved a minimum tax on income that will help corporations better fund its extensive Build Back Better Plan, reports Corporations.

The proposed minimum tax on book income imposes a 15% minimum on corporations based on profits that shareholders publicly report on their financial statements. The levy applies only to companies that have reported revenues of more than $ 1 billion for three consecutive years.

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It “preserves the value of business credits, including R&D, clean energy and housing tax credits – and includes some flexibility for companies to cover losses, use foreign tax credits, and obtain minimum tax credit against regular taxation in future years.” . Elizabeth Warren, Angus King of Maine and Ron Wieden of Oregon – proposed the tax.

President Joe Biden holds his mask and waves as he exits Air Force One at Capital Region International Airport in Lansing, Michigan, on Tuesday, October 5, 2021. (AP Photo / Ivan Vucci / AP Newsroom)

The Congressional Budget Office decided last week that the tax would generate about $ 319 billion over the next decade, going to pay for Biden’s social spending and climate change project.

But a New analysis The partisan Tax Foundation shows how this measure can inadvertently harm private pensions.

Tax Foundation economist Erica York wrote in a recent blog post that the proposed minimum tax may “fall hard on companies that use mark-to-market accounting for their pension plans, depending on the income levels reported on the company’s financial statements.”

With the rise of defined-contribution plans, such as 401 (k), pensions that offer guaranteed retirement benefits to employees are less common today. But many companies still have legacy plans that offer large sums to employees and retirees; In many cases, pension plans are dramatically less money.

President Biden addresses the economy on Tuesday, November 23, 2021 at the Eisenhower Executive Office Building in Washington, DC. (Oliver Contreras / LOVEBYLIFE by Getty Images)

Over the past decade, more than a dozen organizations have opted to use “mark-to-market” accounting for pensions and other defined-benefit plans, which are a way of identifying real gains or losses for the year in which they occur. Time. In short, it is a way to measure the assets of a company or individual based on current market conditions, providing a more accurate representation of assets and liabilities. The mark-to-market system can introduce year-over-year volatility in financial statement revenues, topping $ 1 billion for some companies, mostly due to fluctuations in the value of pension plan investments and interest rates.

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Democrats’ 15% minimum tax on book revenues of large corporations takes into account mark-to-market pension accounting – even if corporations cannot use pension funds for their operations, York wrote. While it is understandable that changes in pension liabilities are included when companies provide investors and markets a direct view of their financial health, “it does not make sense to bring changes in the tax base of pension assets (or pension costs),” he wrote.

“Doing so can create ‘phantom income’, where the company’s revenues can increase (or decline when its pension plan grows) within the book’s minimum tax,” York said. “Those effects can be exacerbated for companies that use mark-to-market accounting because it can lead to particularly volatile changes in the corporation’s reported earnings.”

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