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Breaking down what tax breaks companies get

Yahoo Finance’s Rick Newman and Julie Hyman discuss the corporate tax debate.

Video Transcript

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JULIE HYMAN: Treasury Secretary Janet Yellen yesterday said there should be a global corporate minimum tax. This, of course, as we focus on taxes here in the US specifically, whether they are going up and all the ways that companies employ to not pay them at all. Our Rick Newman is here to talk about that last point in particular and the way that Congress has historically used tax breaks as to incentivize different behavior on the part of corporations, Rick, which then allows them to do those tax breaks and not pay as much in tax. So, how are you thinking about that in relation to this proposal to raise taxes?

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RICK NEWMAN: There's a lot of silliness in the corporate tax code, in part because Congress, what it has done over the years, is it has passed these tax incentives for companies to do things like buy equipment. So you get to deduct the cost of that quicker than you used to be able to, to invest in research and development. We want to incentivize those things.

So companies do take advantage of those tax breaks, which is why you hear sometimes that companies pay little or no income tax in a given year. It's because that's what Congress wants them to do. They want them to be investing that money and opening factories and hiring people, which is what Amazon and a lot of these other companies do.

But now we have President Biden coming along saying we need to raise the corporate tax rate. So we gave them all these tax breaks in the past, but they went too far, I guess, is the point. And then to make this even more confounding, there's this new idea that there should be an alternative minimum tax on corporations, at least on big ones. So if you take too many tax breaks that Congress has already said you're allowed to take, well, then you have to pay some of that back through this alternative tax that Biden and some of the Democrats want to have. I think the number there is 15% if you don't pay enough tax.

And then the final thing is Janet Yellen pitching for a global minimum. Basically, what Janet Yellen is saying, we here in the United States, we want to raise the corporate income tax rate. So we want everybody else, all the other countries, to raise their corporate rates, too, so US companies aren't going to go overseas and just set up shop there. So this is not as simple as it sounds. I mean it's just complexity upon complexity, unfortunately.

JULIE HYMAN: Let's talk about the first part of that complexity that you mentioned, which is the various tax breaks that are supposed to incentivize things, like buying equipment and hiring people. I'm sure there have been studies done on whether it's worth it, right? I mean, typically, when you look at local tax breaks when we saw the whole Amazon battle, right, everybody wanted Amazon to move there. There was a lot of research pulled out that showed that a lot of those local tax incentives don't necessarily pay off the way you think that they're going to. What about on these congressional tax breaks that you're talking about?

RICK NEWMAN: Right, on the local level or even the state level, basically, you just get states or localities competing against each other. And from a national perspective, that doesn't really accomplish anything. I mean, the jobs might go to Wisconsin instead of Arizona, for example. And many times, there aren't just aren't very many jobs associated with that. At the federal level, I think the benefit of these tax breaks probably has been declining over time, simply because of efficiency and automation and digitalization.

So the assumption is that if you give companies tax breaks for doing R&D, that that is going to-- I mean, the ultimate goal of those tax breaks, assuming that it's not just favors for companies that give donations to politicians, is you want to create good paying jobs. And I think that probably is getting harder. And we're seeing this across President Biden's agenda. I mean, this is a thorny problem that nobody has really solved is, how do we get companies and employers and businesses to create more of the good-paying jobs that can finance a middle class lifestyle?

That's a tough thing to do. And I think that's-- I think this discussion of what should the corporate tax rate be and what kind of tax breaks should we give companies, that's only a small part of the bigger question-- how do you bring the-- how do you have more of these good-paying jobs like we used to 40 years ago?

JULIE HYMAN: Yeah, well, all of this debate is undoubtedly going to unfold in Congress with a lot of politics thrown in. Rick Newman, thank you so much for your analysis there. Appreciate it.