Tom Thinks a new Minimum Corporate Tax Will be Interesting
Transcript:
Katie Nealis:
How would Biden’s new proposal 15% corporate minimum tax affect the market?
Tom Vaughan:
Yeah, this just came up yesterday, at least in the news. And so yesterday, the market opened up and went down, you know, there was some worry about this jobs report that was coming out today, and whether it was going to be inflationary, and all these things. And then about, you know, two, three hours into the market, all of a sudden, it turned around and shot right back up. And what happened right, then at that point, where it moved up was that they announced that Biden was willing to change the, the way that they’re going to fund this infrastructure program. Instead of increasing taxes on corporations for 21 to 20, to 28%, they’re going to try to make a minimum tax of 15%. And actually, let me share something here that I do have. I’ll pull this up real quickly. There we go. This is actually from Ned Davis. And this is tax rates by industry. And this is kind of fascinating.
So prior to the 2017, tax law change, here’s all the tax rates 2430. So this is the average tax rate by sector. So industrials, had a 30% tax rate, after the tax law change of 2017, like industrials dropped down to 21.8%. So it’s you know, you can see the differential between where the taxes were prior to the tax change. And you can also see why the markets concerned about moving them back up. Because again, it takes away from earnings. And so what they’re proposing right now is that we would have a 15% minimum, right? If you look at this, all of these industries are paying more than 15%. Except for real estate. Real Estate has a tremendous amount of write offs and depreciation and different things like that. And so you know, be interesting to see how they actually apply that. But what they’re talking about is within some of these industries, even though the average tax rate might be 22%, there are some really big companies quite famous, that are paying zero.
Easan Arulanantham:
So you’re talking about like those Microsoft and Amazon because I know, Microsoft had like $315 billion of profit that they paid $0 of tax on?
Tom Vaughan:
Yeah, exactly. It’s beyond, it’s beyond my paygrade to understand exactly how that works, you know, I’m not positive how they managed to get to zero, I’m assuming they’ve got a lot of, you know, different offshore activity and write offs and appreciations and things that they’re able to do. And maybe they’re paying that taxes to a different country that has a lower tax rate. And so there are different ways, but what what they’re trying to say in this in this piece is that, hey, if you’re operating in our country, you need to pay at least 15%, you know, and so the average is higher. So a lot of these companies that won’t affect right, you can see the average is higher than 15. But there are these big companies that are quite famous, and so they must see some decent revenues that they could get out of that. And so I think it’s an interesting way.
Now, I will say very strongly that the market likes this. And so that’s important too. So that yesterday, the market turned around right on that news, because this is a big overhead thing that’s been happening to the market, this worry about increasing corporate taxation. And so if you’d now say, Hey, we’re not going to do that we’re not going to go from 21 to 28, we’re gonna put in this 15% minimum. And again, we don’t know all the details that it doesn’t really matter if we did, because until it passes, it’s just a proposal, but the market went up. And it went up all day yesterday, really, and it’s going up today, again. So I think that’s one of the things to kind of look at just to see what Wall Street thinks of that proposal. And they like it better. You know, maybe once we see some of the details, they’ll be some things they don’t like as much, but between those two competing things, going from 21 to 28% on the kind of, you know, regular tax bracket, or just having the same 21%. And maybe everybody has to pay at least 15 no matter what you have, you know, you have to pay that and so that, that that’ll be interesting. There’s probably a whole bunch of pieces that aren’t being discussed yet because it hasn’t been fully absorbed. But I do think it’s an interesting area.