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**AUGUST 1, 2022**

Kuttner on TAP

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**** Is the Tax Reform
in the Schumer-Manchin Deal for Real?

Amazingly, the package includes provisions that have long eluded
progressives.

The surprisingly progressive tax provisions of the Manchin-Schumer deal
allowed Democrats to unite behind the artfully titled Inflation
Reduction Act. The new revenues finance both new climate investments and
$300 billion of deficit reduction over a decade as a sop to fiscal
conservatives.

These deficit cuts will do little to cut inflation, which is being
driven mainly by other forces. The deficit is already projected
to come down by
$1.7 trillion this year alone. The genuinely anti-inflation parts of the
bill are the provisions that will reduce drug costs to consumers, plus
the clean-energy tax credits. But I digress.

The best part of the revenue provisions is the corporate minimum tax.
Closely modeled on a plan first proposed by Sen. Elizabeth Warren, the
measure requires corporations to pay taxes of at least 15 percent on
profits that they report to their shareholders, not on "profits" as
characterized by creative accounting. This provision will raise $313
billion over a decade.

The reform covers only corporations reporting over $1 billion in annual
income-about 150 of America's largest. When the deal was first
reported, skeptics wondered whether it was too good to be true. Would
the fine print allow for deductions that would bring the effective tax
rate well below the nominal 15 percent?

In fact, the bill allows no room for bogus deductions
.
It allows legitimate tax credits such as renewable energy and low-income
housing, but not manipulation of depreciation and other ploys widely
used by big corporations to cut their tax obligations to zero.

The other major revenue-raiser in the package is more funding for the
IRS. If anything, the $124 billion revenue projection from better tax
enforcement is way low. The government fails to collect many hundreds of
billions of dollars, owed but untaxed, because tax-evasion gimmicks
become more brazen and more convoluted every year.

Virtually all this lost revenue is from very high-income people and
partnerships. The Republican/corporate strategy has been to underfund,
and overwhelm, the IRS.

A third provision reforms the long-abused provision that allows private
equity compensation to be taxed at lower capital gains rates rather than
as ordinary income. Private equity companies, which claim to employ
227,000 people in Arizona, have put a full-court press
on Kyrsten
Sinema to block this provision.

Closing this so-called carried interest loophole is long overdue. But
this part of the reform raises only $14 billion over a decade. Even if
the fickle and conflicted Sinema were to make it a deal-breaker (and
let's hope she doesn't), the rest of the package is well worth
enacting.

Of all the improbable outcomes this year, genuine progress on climate
financed by genuine tax reform, and co-sponsored by Joe Manchin no less,
had to be one of the most fanciful. But here we are. Maybe good things
will happen in November, too.

~ ROBERT KUTTNER

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