Examining the tax provisions in the Democrats’ budget bill

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• William Brangham:

  As the U.S. House of Representatives prepares to cast the final vote on the Democrats' sweeping climate and health care bill tomorrow, Lisa Desjardins takes a look at how the measure would change the nation's tax laws.

• Lisa Desjardins:

  William, few things before Congress directly affect our bank accounts, who is rich and who is poor, more than tax policy.

  These changes in the bill are significant. Here's what it will do. First, this would create a 15 percent minimum tax on large corporations. Exempt from that would be some hedge funds and investment firms. Also new, a 1 percent tax on stock buybacks which companies use to increase their stock price.

  What will all that mean in reality?

  For more, I'm joined by Michael Graetz. He's a professor of tax law at Columbia University and co-author of "The Wolf at the Door: The Menace of Economic Insecurity and How to Fight It."

  First, Professor Graetz, I want to establish some baselines with our viewers.

  Let's talk about the corporate tax change. Here's what we know about it. This 15 percent minimum tax would be for businesses making over $1 billion a year. That would be on an average over three years. The Joint Committee on Taxation says that will affect about 150 companies and raise well over $200 billion.

  That's a lot of numbers. But, Michael Graetz, how significant do you think this is?

• Michael Graetz, Columbia University:

  Well, in some senses, it's important. It's not earth-shaking. This minimum tax raises about the same amount of money as raising the corporate rate from 21 to 23 percent.

  So, it's less than many people had urged, although, as you know, well, Kyrsten Sinema was not prepared to raise the corporate rate, the main rate, at all.

  The problem here is that there are many companies that have very large earnings that they're reporting to their shareholders, and they're paying little or no tax. And this minimum tax is directed at addressing that problem.

  And so the revenue it raises is only from large corporations who have large amounts of income and are paying taxes that are less than 15 percent of the income they're reporting to their shareholders.

• Lisa Desjardins:

  Those corporations also have large amounts of lawyers. What are the chances that they will find a different way around this tax? How do you read this new law? How strong is it?

• Michael Graetz:

  Well, I think it's quite strong, because corporate managers are very anxious not to reduce the amount of earnings that they report to shareholders.

  And if you look at the history of tax shelters in the corporate sector in the United States, one common feature of those tax shelters is that they reduce taxes, but they did not reduce the earnings reported to shareholders on their books.

• Lisa Desjardins:

  You mentioned Senator Kyrsten Sinema.

  One of the groups that also that actually did well in this bill is hedge fund and equity fund managers, who she protected a couple of different times from getting larger tax hits from this bill.

  When I asked, sources close to her told me that she was concerned that raising taxes on hedge fund managers would affect investment in her state. I wonder what you make of that argument? And what do we know about taxing these wealthy hedge fund managers?

• Michael Graetz:

  This has been an issue for more than a decade that there have been major efforts to change these taxes, so that these managers pay ordinary income rates, the normal rates that you and I pay on our salaries.

  The private equity groups in particular, but the hedge fund managers as well, have been very effective in blocking those changes, as I say, now going back over a decade. It turns out that Kyrsten Sinema is taking the heat for this because she was the only Democrat in the Senate that was prepared to say, let's not do this.

  But they have been very effective. They have spent millions of dollars in lobbying. They have spent tens of millions, if not more, in campaign contributions. And every time this comes up, they seem to win.

• Lisa Desjardins:

  I want to ask you about the stock buybacks. That's a new 1 percent tax on, that the idea that companies buy back their stocks to increase the value for them and for their shareholders.

  Tuesday, Judy Woodruff asked Majority Leader Chuck Schumer about this idea that the bill does help some of the wealthy. And here was his response.

• Sen. Chuck Schumer (D-NY):

  We're putting a 1 percent tax on stock buybacks. These stock buybacks also help the corporate billionaires and the big, big hedge fund holders and things like that, because — and they do no benefit for people. They just make the stock price go up by having fewer shares.

  So that brought in $70 billion against the very wealthy.

• Lisa Desjardins:

  Stock buybacks, of course, companies use those to increase their value for them and their shareholders.

  Is what Leader Schumer said accurate?

• Michael Graetz:

  Well, he's right that they use stock buybacks, which have some tax advantage over paying dividends, and that the stock buybacks do tend to raise the prices of their shares.

  The real question here is whether this 1 percent tax on stock buybacks is going to change any behavior of corporate managers at all. I would predict not. If you look at the revenue that the Joint Committee on Taxation believes this provision will bring in, I think they believe not.

  They're basically assuming stock buybacks will continue at a high rate. That's how you get the money from this provision. So I don't think it's going to change corporate behavior. And I certainly don't think it's going to affect the millionaires and billionaires that Senator Schumer was referring to.

• Lisa Desjardins:

  Over all of this, of course, is growing disparity in this country.

  And I just want to ask a big-picture question. Do you think these tax changes will have any effect on that rich and poor gap that has been growing in this country?

• Michael Graetz:

  I think not, I'm sorry to say.

  There are no taxes on wealthy individuals. Joe Biden, as president, proposed $365 billion of increased taxes on the wealthy in his budget proposals this year. And, in this bill, there are zero of those. So there are many loopholes that remain. But this bill has basically decided that the only taxes that will be raised here mainly are large, large corporations.

  And those taxes are small enough that I don't think it's going to have any effect, any noticeable effect on the distribution of wealth or income in this country, that the division between the rich and everybody else is going to continue, I'm afraid.

• Lisa Desjardins:

  Michael Graetz of Columbia University, thank you so much for talking with us.

• Michael Graetz:

  Thank you, Lisa.