In 2024, Tesla reported a profit of $7.1 billion but paid no corporate income tax, according to an analysis by the nonprofit Institute of Taxation and Economic Policy, or ITEP. That isn’t particularly unusual. Corporations are forever telling the Internal Revenue Service that their profits are low even as they tell Wall Street that their profits are high. This is, weirdly, legal. Corporations keep two sets of books that follow different accounting rules, one for the tax man and one for prospective investors.
The results from this profit-and-loss shell game are exactly what you’d expect. An ITEP study of the 296 most consistently profitable companies in the S&P 500 and Fortune 500 found that between 2013 and 2021 these companies’ profits grew by 44 percent even as their tax bills fell by nearly half.
Partly—but only partly—this was the result of President Donald Trump’s 2017 tax cut, which lowered the top corporate tax rate from 35 percent to 21 percent and eliminated the corporate alternative minimum tax (or CAMT). But hardly any corporations had ever paid sticker price before. Even when the top rate was 35 percent, ITEP’s cohort of highly profitable large corporations really paid, on average, 22 percent, thanks to various tax loopholes. After the top rate dropped to 21 percent, this cohort really paid, on average, 12.8 percent.
To address such gold-plated tax evasion, President Joe Biden’s Inflation Reduction Act in 2022 reinstated CAMT. Under Biden’s version, any company whose average income exceeds $1 billion (only about 80 exceptionally rich corporations do so) must calculate tax liability in three stages. Stage One is to calculate based on the corporate rate of 21 percent, including whatever deductions or credits or other loopholes the IRS code permits. Stage Two is to calculate based on the CAMT rate of 15 percent, using the larger profit number (“adjusted financial statement income”) that gets reported to investors. Stage Three is to pay the larger of the two sums. At the time of CAMT’s passage the Joint Committee on Taxation calculated it would increase revenues by $222 billion over ten years.
But on November 8, The New York Times’s Jesse Drucker reported that the Trump administration is “rapidly gutting” CAMT through a series of proposed regulations and other administrative rulings by the Treasury department. In July, for example, the Internal Revenue Service issued a guidance regarding partnerships, called Notice 2528, that modified or withdrew previous regulations issued under Biden. The new guidance had the effect, the accounting firm KPMG advised clients, of “reducing the likelihood or amount of a CAMT liability.” In September, to cite another example, the IRS’s Notice 2546 and Notice 2549 modified or withdrew another set of previous regulations issued under Biden. The new guidances had the effect, the law firm Vedder Price advised clients, of allowing them to “disregard unrealized gains on cryptocurrency and other digital assets” when calculating CAMT liability. (You might have heard that our president moonlights as a crypto investor.)
“Treasury has clearly been enacting unlegislated tax cuts,” one tax expert told Drucker. “Congress determines tax law. Treasury undermines this constitutional principle when it asserts more authority over the structure of the tax code than Congress provides it.”
It’s richly ironic that the Trump administration, which cheers the Supreme Court as it reduces sharply the power of the administrative state, now stands accused of giving the administrative state too much power. Regulatory might for me, but not for thee! The overreach is so blatant that Drucker’s tax expert turns out to be Kyle Pomerlau of the conservative American Enterprise Institute. Pomerlau has been admirably critical of tax giveaways to the rich under Trump; previously he criticized the Big, Beautiful reconciliation bill’s 20 percent pass-through deduction, which will drain the Treasury of $737 billion over the next ten years, with more than half the benefit going to millionaires.
Like the pass-through deduction, the Treasury department’s regulatory gutting of Biden’s CAMT nicely illustrates how one business tax cut for the rich leads to another, and another, and yet another, in an endless downward spiral.
Biden’s 2022 CAMT was designed to bring in significantly more revenue than the predecessor CAMT that Trump eliminated in 2017. But Congress ended up adding to Biden’s CAMT many of the same credits and exclusions (accelerated depreciation, research and development credit, net operating loss deduction, foreign tax credit) that made both the IRS code and the previous CAMT so leaky. As a result, Brookings’s Elena Patel suggested, far from bringing in $222 billion, Biden’s CAMT was likelier to bring in closer to $10 billion. Few large corporations, it seemed, would have much to fear from Biden’s CAMT.
But even a weak corporate alternative minimum tax will acquire greater salience if other corporate taxes tumble. After Trump returned to the White House he pushed through Congress a Big, Beautiful reconciliation bill that included about $1 trillion in corporate tax cuts—an eye-glazing assortment of depreciation bonuses, accelerated expensing of research and development, higher limits on interest deductions, and so on. Corporate tax bills fell so low that suddenly Biden’s porous CAMT threatened to spoil the party.
On the same day Drucker reported in the Times that Trump’s Treasury was gutting CAMT, Richard Rubin reported in The Wall Street Journal that CAMT was a monster raging out of control. “Trump’s Tax Cuts Are Exposing Companies to Biden’s Tax Hike,” ran the headline. Meta, for example, after initially calculating significant savings from Trump’s tax cut, actually “took a $15.9 billion one-time hit in the third quarter because of the long-run interaction between the new law and the 2022 law.” Qualcomm likewise found that it couldn’t use Trump’s deferred tax breaks because CAMT presented it with a $5.7 billion tax bill.
On closer inspection, both the Times and the Journal were telling essentially the same story; the main difference was that the Times began the narrative in medias res while the Journal started from the beginning. Both papers concluded that the corporations’ response to the CAMT menace was to lobby Treasury, quite successfully, for a clawback.
The biggest difference between the two accounts was that the Journal’s Rubin, unlike the Times’s Drucker, didn’t find anything irregular in this.* “Congress gave the Treasury Department broad authority to implement CAMT,” Rubin wrote, linking to an earlier article he’d written that addressed this point not at all. The earlier piece merely noted that Biden’s Treasury department issued 603 pages of proposed regulations implementing CAMT. To my mind that reflects not Congress conferring unusually broad authority, but Congress putting too many carveouts into Biden’s bill.
My larger point, though, is that once you start cutting taxes for persons or entities with vast financial resources, you’re going to create new imbalances that other persons or entities with vast finances resources will complain about. These will then get fixed, creating a third set of imbalances and compromises unto infinity. “They’re effectively repealing the statute,” a tax lawyer and former IRS official told Drucker. I believe it. When the Democrats recapture the White House, Congress may have to pass an alternative corporate alternative minimum tax, or ACAMT. Let’s hope they’ll have learned their lesson, and allow no loopholes.
* This article originally misidentified these authors’ outlets.
