General Summary of the Bill

In June 2024, the bill known as H. R. 8797, titled the "Ending Corporate Greed Act," was introduced in the United States House of Representatives. This legislation aims to amend the Internal Revenue Code of 1986 to impose a new form of income tax targeting excess profits accrued by certain large corporations. The bill proposes a 95% tax rate on profit figures that exceed a corporation's typical earnings, establishing a specific calculation model based on previous years' income adjusted for inflation. The provisions apply to substantial corporations with average annual gross receipts of $500 million or more. However, its application is temporary, covering taxable years from January 1, 2024, to December 31, 2026.

Summary of Significant Issues

This bill introduces several complex issues, particularly around the proposed tax scheme:

• High Tax Rate: The imposition of a 95% tax on excess profits may appear overwhelmingly high, potentially imposing substantial economic and financial stress on targeted entities. This could lead to adverse consequences, such as affecting jobs or prices for consumers.

• Complex Calculation Method: Determining what constitutes "excess profits" involves a sophisticated computational process, incorporating inflation adjustments and historical data. This complexity may result in difficulties for corporations in accurately assessing their tax liabilities.

• Cap on Tax Liability: The bill includes a constraint where the imposed tax should not exceed 75% of modified taxable income. Although designed to prevent excessive taxation, this cap adds another layer of complexity.

• International Competitiveness: The limitation or exclusion of deductions for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) could hinder the competitive edge of U.S. corporations in the global market.

• Administrative Burden: The aggregation rules, particularly for multinational corporations, and the special rule regarding foreign persons' gross receipts create additional legal and administrative challenges due to complex attribution and aggregation requirements.

Potential Impact on the Public and Stakeholders

Broad Public Impact

The proposed taxation policy could affect the public indirectly through its economic impact on large corporations. Businesses facing higher tax burdens might curtail investments, reduce workforce, or increase prices, which could have ripple effects on job markets and consumer costs. Additionally, the complexity and temporary nature of the provision could lead to instability in corporate planning, potentially slowing economic progress.

Impact on Specific Stakeholders

• Large Corporations: Corporations falling under the "applicable taxpayer" category would be most directly affected, potentially incurring significant additional tax liabilities. The administrative complexity introduced by the bill could further burden these entities with increased compliance costs.

• Tax Professionals and Legal Advisors: The intricate calculations and specific definitions introduce new challenges for professionals in accounting and law to ensure corporate compliance. This could increase demand for specialized tax advisory services.

• Government and Regulatory Bodies: Implementing and monitoring the new tax regulations would require additional resources and might complicate tax administration, especially regarding international corporations.

Overall, while the bill aims to target perceived corporate profiteering, its high tax rate and complex provisions may lead to unintended consequences for large businesses and potentially the broader economy. Each stakeholder would need to navigate carefully through the technical and legal intricacies introduced by this legislative measure.

The Ending Corporate Greed Act introduces a significant shift in the taxation framework for certain large corporations by imposing a tax of 95% on what is termed as "excess profits." This financial measure targets corporations with average annual gross receipts exceeding $500 million, excluding entities such as regulated investment companies, real estate investment trusts, and S corporations.

Financial Implications and Structure

This proposed legislation looks to identify "excess profits" by comparing a corporation's modified taxable income with an adjusted income average from the years 2015 to 2019, accounting for inflation. The complexities involved in this calculation are substantial. It requires not only a historical baseline but also adjustments for inflation, which complicates the financial computations. Corporations may find the calculations challenging, potentially leading to compliance issues given that a miscalculation could have significant financial repercussions due to the high tax rate involved.

Issues with the Tax Rate and Calculation Complexity

The imposition of a 95% tax rate could impose intense economic strain on the affected corporations. Such an elevated tax is designed to heavily tax profits above historic averages, which could consequently dissuade these entities from expanding or investing further. Additionally, the potential impact on businesses may translate to broader economic outcomes such as influencing job stability and consumer pricing structures.

An additional consideration is the rule that the tax cannot exceed 75% of the modified taxable income. This presents another layer of complexity, requiring corporations to engage in intricate financial planning to ensure compliance while potentially altering their fiscal strategies to mitigate enhanced tax burdens.

Modifications and Operational Challenges

Moreover, this bill modifies deductions for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) without permitting deductions under Section 250, which could impact the global competitiveness of U.S. corporations. Corporations that engage internationally may find these modifications particularly challenging as they adjust their strategies to remain viable on the global stage.

For domestic and multinational corporations, the bill introduces aggregation rules to determine who qualifies as an "applicable taxpayer." These rules can introduce substantial legal and operational challenges as corporations must navigate complex rules to determine aggregated gross receipts and related tax obligations.

Long-term Planning and Uncertainty

The sunset clause within the proposed legislation, which ends applicability after December 31, 2026, further contributes to strategic uncertainty. Corporations need to plan several years in advance, and the finite nature of this tax provision might interfere with long-term investments and business strategies.

In essence, while the bill targets large corporations with substantial profits, the financial implications, complex calculations, and potential economic repercussions pose a range of issues. These challenges could influence not just corporate operations but also broader economic conditions.