Since 2014, a huge number of documents have been leaked that expose how powerful corporations and rich individuals are exploiting a global tax system that allows them to pay little or no taxes, often year after year. This exploitation is fueling an extreme gap in wealth and destroying the resources necessary to invest in America's families and our economy. The Build Back Better Act would make sure large corporations start paying their fair share of taxes and raise the revenue needed to help grow our nation's economy.
There is no denying that large companies have been using a maze of tax breaks and deductions to minimize their taxes. But the real problem is that these profits are eroding America's income tax base, and the corporations' use of these tax breaks makes it harder for domestic firms and American workers to pay their fair share for essential services like education, public safety, and legal systems. The debate about corporate tax avoidance is a complicated one. It's often confused with tax evasion, and the two terms are not interchangeable. Overhead is the company's money on rent, utilities, insurance, taxes, office equipment, and other costs that support the business. These overheads don't directly contribute to a company's revenue but help it operate and grow. Large companies may be allowed to reduce their tax overheads, depending on how a particular company is run. If a company is going through a period of slow sales, it may be wise to lower its overheads as much as possible to avoid falling into financial trouble. One example of a loophole many people would like to see closed is the carried interest tax loophole. This allows private equity and hedge fund executives to claim large parts of their compensation as investment gains, which are preferentially taxed at lower rates than ordinary income. This loophole is a big source of tax avoidance, and it helps drive global inequality and wealth gaps. It also erodes the government's ability to provide essential services and infrastructure, which can affect people's lives. Tax expenditures are the deductions, credits, exclusions, and other preferences that reduce a taxpayer's income tax bill. They can include deductions for health care, charitable contributions, mortgage interest, state and local taxes, and other benefits that help millions of households. They also reduce the revenue available for other purposes, such as government spending, that would have otherwise been paid with that tax money. Estimating this opportunity cost is a key aspect of fiscal management. However, a comprehensive evaluation of a tax expenditure can be difficult and requires a great deal of expertise. The resulting analysis helps policymakers decide whether the policy is effective, merits continued taxpayer support and makes sense for the nation's budget. Incentives are tax breaks, credits, exemptions, or deductions that reduce a company's taxable income. These can include things like the Small Business Health Care Tax Credit, R&D credits, and property tax abatements. While they can be beneficial, these tax incentives have a variety of costs and impacts that policymakers should consider carefully. These effects vary with incentive design and economic conditions. When looking at the potential benefits of a business incentive, policymakers should consider if the program helps businesses overcome practical barriers to growth and whether it improves employment rates or wages for residents. In a new paper, Slattery and Bartik find that state and local governments spend at least $30 billion annually on business tax incentives. The researchers find that most business incentives do not increase employment rates and may be costly to taxpayers. They also find limited evidence that firm-specific subsidies have broader economic effects.
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