As anyone who watches Washington politics already knows, on Sunday afternoon the Senate passed its massive economic reform bill known as the Inflation Reduction Act. Two elements in that legislation caught Calcbench’s eye: a new minimum corporate tax of 15 percent; and 1 percent excise tax on share repurchase programs.
Can Calcbench users get an early start on considering the implications for Corporate America? You bet!
Let’s start with share repurchase programs. Calcbench has published numerous reports over the years about how much money corporations have spent buying back shares. Most recently, we did an analysis of all public companies (regardless of size), and found that they collectively spent $6.52 trillion from 2012 through 2021 on share buybacks.
Tech companies such as Apple ($AAPL), Google ($GOOG), Microsoft ($MSFT), and Oracle ($ORCL) led the way; but share repurchase programs reached a large swath of corporations great and small.
In 2021, the S&P 500 spent a collective $841.6 billion on share buybacks. Leading the way were Apple ($85.5 billion), Microsoft ($60.7 billion), Google ($50.3 billion), and Facebook ($44.8 billion).
In theory, that 1 percent excise tax would imply an additional tax cost of, well, 1 percent of whatever amount a company is spending on share repurchases. That would have been $8.4 billion for the S&P 500 based on 2021 numbers. (Before anyone gets carried away, though, let’s remember that the House still has to pass this bill too, and the president sign it into law.)
We don’t yet know what 2022 repurchase spending might be, especially since rising interest rates makes borrowing to repurchase shares a less attractive idea than it was in the 2010s. Still, Calcbench has extensive data on share repurchase programs if you want to start modeling some scenarios.
The Inflation Reduction Act also contains a corporate minimum tax of 15 percent on the domestic profits of large companies. This is also known as the minimum book tax, since the 15 percent tax would be based on GAAP net income reported to shareholders in the annual 10-K. The tax would apply to companies reporting $1 billion or more in annual net income.
We jumped onto our Multi-Company page and found 303 companies within the S&P 500 that reported $1 billion or more in net income for 2021. Apple led the way with $94.7 billion, down to Campbell Soup ($CPB), which squeaked onto the list with $1.002 billion.
Total net income among this group was $1.752 trillion. A 15 percent minimum tax against that amount would be $262.9 billion.
As the Senate bill stands now, the 15 percent book tax would not automatically be the amount a company has to pay. Companies would also need to calculate their potential income tax using the traditional method of applying the current corporate tax rate (21 percent) plus various deductions and credits. Then a company would need to pay whichever amount is greater— either that traditionally calculated number, or the 15 percent minimum tax.
Again, you can skim the Calcbench research archives to see our prior reports on corporate tax payments. Other analysts have also published their own tax research based on our data, and we have some prior posts recapping their findings as well.
You can always do whatever research catches your fancy as well, using the standardized metrics on our Multi-Company page to search for net income, tax payments, or other related terms.
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