AME Responds to Inflation Reduction Act

Significant concerns over treatment of corporate taxation

By Americans for a Modern Economy

August 15, 2022

This week, President Biden is expected to sign the Inflation Reduction Act, a signature accomplishment during the first year and a half of his presidency. While the legislation touches many aspects of the American economy including healthcare, sustainability and renewable energy goals, it’s the provisions regarding corporate taxation that are most alarming.

Regardless of corporate tax rates or minimum tax levels, the legislation makes the fundamental mistake that countless other pieces of legislation before it have made – ignoring the differences and complexities of corporate business models and the subsequent ability to pay. Once again, Congress has passed tax legislation into law that treats corporate taxpayers roughly the same, regardless of model and profitability.There is a fundamental difference in the impact of this legislation to a company like Google for instance which makes $400,000 in profit per employee and entry-level employers like restaurateurs or retailers who are making a few thousand dollars of profit per employee.

Not all companies are alike and the diversity of models affects impacts differently. According to researchers at the University of Tennessee who authored a study entitled, An Economic Analysis of Business Exemptions from Public Policies, profits per FTE employee (henceforth, PPE) would be a superior measure of a firm’s ability to bear the burden of regulatory or tax compliance because it simultaneously captures ability to pay as well as size.  It is also based on data elements (profits and employment) that are regularly reported by all types of firms on annual tax forms.  A focus on PPE is motivated in part by a recognition that average employment and profits per employee appear to be inversely related.  Some sectors are characterized by above-average profits per employee and below-average employment, while others have low PPE and high employment.  The study provides the economic and intellectual rationale for why PPE should be equally considered as a metric in determining impacts of public policy proposals and determining potential exemption eligibility. We look forward to ensuring that this metric is introduced in future taxation conversations at the federal, state and local level.

Americans for a Modern Economy is committed to ensuring that local, state and federal policies reflect changing technologies that are reshaping the way consumers, businesses and communities operate in the 21st century economy. We work with consumer advocates, businesses, think tanks, economic experts and others to raise awareness and inform discussions about the current and future policy challenges of new technology. We serve as a resource for lawmakers to help them develop modern policy solutions that benefit all Americans by expanding consumer freedom, allowing businesses to best serve their customers and preserving free market competition.