Business taxes increase just as the US economy heads into rough waters

Business taxes increase just as the US economy heads into rough waters

Several business taxes are rising just as the US economy faces heightened risk of recession, threatening to prolong financial hardship for many businesses and consumers.

Starting this year, businesses will face a steeper federal tax burden thanks to several major changes included in the climate change and health care spending bill that Democrats passed over the summer. On top of that, key provisions of the 2017 Republican tax reform will be phased out this year.

Combined, the tax increases are expected to cost businesses about $115 billion this year, a large increase from previous years, according to the Joint Committee on Taxation.

“We are very concerned about the impact of tax increases in a period of recession,” Chris Netram, managing vice president for national economic and fiscal policy at the National Association of Manufacturers (NAM), told FOX Business. “Some of the articles that have already gone into effect, that Congress failed to reverse late last year, are causing our members a lot of pain.”

NEW YORK AND CALIFORNIA TAKE THE BIGGEST HIT AS MORE AMERICANS FLEE TO LOW-TAX STATES

united states capitol building

the united states capitol (Anna Rose Layden/Getty Images/File/Getty Images)

Among the increases that will take effect this year is a minimum 15% tax on corporations that is based on the profits they publicly report in their financial statements to shareholders. The minimum book tax would only affect companies that reported more than $1 billion in revenue. The levy, a key feature of the Reducing Inflation Act, would affect about 200 of the nation’s largest corporations with profits greater than $1 billion and paying less than the current 21% corporate rate, According to the Democrats.

That spending bill also included a 1% tax on share repurchaseIt will only apply to publicly traded companies.

Experts expect the two taxes to drag down earnings from 2023, with Goldman Sachs forecasting a 1.5% drop per share for S&P 500 companies. Lower earnings are expected to hit industries like healthcare and IT due to the low effective tax rate.

Meanwhile, UBS strategists led by Solita Marcelli projected the new taxes would have a “minimum 1% drag on S&P 500 earnings per share, though some companies will be hit harder than others.”

Biden signs the Inflation Reduction Act

President Joe Biden signs the Reduce Inflation Act of 2022 (climate change and health care bill) at the White House on August 16, 2022. (Demetrius Freeman/The Washington Post via Getty Images/Getty Images)

NEW IRS TAX BRACKETS TAKE EFFECT IN 2023, WHICH MEANS YOUR PAYCHECK COULD BE HIGHER

Those changes are in addition to other business tax increases that were put in place last year to help pay for the Republicans’ 2017 tax cuts and will remain in effect through 2026. That includes phasing out a 100% bonus depreciation, a stricter limitation of interest deduction and an increase in international tax rates.

Another provision requires companies to write off deductions for research and development expenses over five years instead of taking them all at once. Nearly 180 CFOs asked lawmakers in November to reverse course and repeal the law before the end of the year; however, Congress failed to reach an agreement before its last session in December.

Aerospace and defense company Raytheon Technologies said in October that the change has already caused its tax bill to rise by $1.5 billion.

raytheon

Aerospace and defense company Raytheon Technologies said in October that the change has already caused its tax bill to rise by $1.5 billion. (AP Photo/Elise Amendola/File/AP News Room)

Goldman Sachs expects the changes in R&D, interest and bond depreciation to increase the effective corporate tax rate this year by 1.6 percentage points, equating to a “small” reduction in profits.

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“Corporate tax policies taking effect in 2023 should have a small impact on aggregate S&P 500 earnings, but the impact will vary across sectors,” the bank said in a research note earlier this month.

Netram said that NAM is pressing lawmakers to reverse the changes, particularly in R&D, and indicated that there is bipartisan and bicameral support for doing so.

“For this current Congress, we’re starting in a really strong place,” he said. “There is broad support to prevent these tax increases from taking effect.”

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