This is tax day!
Those of you who marked the position of the sun and moon by April 15 had to adjust this year. Many of you probably recently visited with your tax person. You may have asked, “So, what is Biden going to do?”
First, let’s talk about that tax person. Tax persons come in many shapes and sizes. I suppose, like the average American, the shapes have been changing for the worse over the years. So let’s instead focus on the age of the tax person and the life experiences they have had.
Odds are that your tax person is age 80 or less. Probably much less. But for sake of making my point I will use an 80-year-old tax person. He was born in 1941. He started practice in 1962 (or around then).
He just finished his 49th tax season. The age of a tax person is measured by their tax seasons, like rings on a tree. The only difference is you have to ask them because it’s illegal to cut them open.
At the birth of our tax person the corporate tax rate was 24%. While he was in non-disposable diapers, just after Pearl Harbor, that rate jumped to 31% to fund the war cause.
The Korean War raised the rate to 51%. It stayed above 50% until 1965 when it dropped to 48%. Great Society and Vietnam funding needs raised it to 53%. It was cut to 48% in the 1971 recession and slashed to 34% in 1988 during another recession.
There it stayed until 1993 when the first Clinton act raised it to 35%. This was the rate until 2018 when it dropped to 21% and where it now sits.
This means until three years ago, our 80-year-old practitioner never saw a rate below 24% and that required that he could read in 1940. He never saw a rate below 46% in the first 25 years of his tax practice. From the moment he could walk, the rate was below 31% only from 2018 to now.
Biden’s infrastructure plan, which I’ll call Tax Plan I, proposes to raise the corporate rate to 28%. This, we are told by its opponents, will cause the U.S. economy to collapse. As Inigo Montoya said in “The Princess Bride,” I do not think that means what you think it means.
It is not even the key to funding the Biden infrastructure plan. The big stuff is to attack multinationals. There is a corporate minimum tax based on book reported income. There is a push for a global minimum tax.
There is a penalty on inversions, where a U.S. company claims to move offshore while keeping all their valuable stuff, including for sure their cash and their key people, in the U.S. There are increased corporate tax audits.
All of that foreign stuff is really complicated. So we focus on 28%. That’s more than 21%. Easy to write about, easy to talk about. There’s been so much talking that Biden has said he could live with 25%.
Our 80-year-old might wonder what’s all the kerfuffle. We defeated Hitler with a 31% rate. Clint Eastwood’s fictional Walt Kowalski helped build the 1972 Gran Torino when the rate was 48% and the U.S. auto industry didn’t require any bailouts.
As a tax commentator I’ll just play the hand I am dealt. Expect more wailing and gnashing of teeth about a 28% corporate tax rate. But pay attention to what is not in Tax Plan I.
There is no increase to the individual tax rate. There is no increase to capital gains rates. That stuff is in Tax Plan II. No plan reduces the assets that may be transferred tax-free by an estate.
But we now play a game in the Senate called “Joe Manchin says,” using the same rules as “Simon says.”
Pass more tax legislation by reconciliation? Hah, hah, you lose! No one said “Joe Manchin says.” So when the new administration is looking for tax revenues, maybe you and I should just point to the nearest multinational and say “I think I saw that guy flashing a wad of 50s.” But to be safe, first say “Joe Manchin says.”
Jim Hamill is the director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at firstname.lastname@example.org.