By: Tom Hebert
The Democrat Party is pushing a reckless tax and spend reconciliation package as inflation rages on and as Americans weather a recession.
The bill contains a crushing 15 percent minimum book tax on the financial statement income of American businesses reporting over $1 billion in profits over the past 3 years, whacking American companies in every leading industry. A Tax Foundation report from last December found a 15 percent book tax would reduce GDP by 0.1 percent and kill 27,000 jobs.
The minimum book tax will particularly hamper wireless spectrum investment, putting the United States behind Communist China in the race for 5G deployment. Lawmakers should reject this reckless tax-and-spend inflation bill.
Spectrum is another name for the radio waves that allow Americans to communicate wirelessly through modern technology. The federal government allocates spectrum licenses for various uses, mainly through spectrum auctions, where companies bid against each other for spectrum rights. Instead of the government picking winners and losers, spectrum auctions ensure that spectrum distribution is transparent, efficient, and economically rational.
Spectrum auctions are good for taxpayers because they raise revenue for the government without raising taxes. Since their inception, spectrum auctions have raised over $230 billion for the Treasury Department, and lawmakers use spectrum auction proceeds to fund legislative priorities. The House just passed the “Spectrum Innovation Act,” which reauthorizes short-term FCC auction authority, on a 336-90 bipartisan vote.
The 15 percent book tax would chill investment in spectrum because spectrum licenses are not deductible from a company’s book income. As the Tax Foundation points out, telecommunications companies spend the cash to acquire the licenses, then amortize the cost over 15 years because licenses are treated as indefinite lived assets for financial statement purposes.
A book minimum tax would amount to a retroactive tax increase on spectrum licenses that companies have already purchased. In the Tax Foundation example, a company in 2023 would still deduct a $45 billion purchase from 2021. If a company gets whacked with a book minimum tax for that year, it could pay tax on the $3 billion deduction, leading to an increase in tax liability of $450 million.
Paradoxically, a tax that Democrats think will raise revenue may actually lead to a net decrease in revenue from telecommunications companies. The book tax would disincentivize companies from participating in future spectrum auctions, driving the cost of new licenses down. Even though the CBO will not score the loss of auction revenue because it is too speculative, the chilling effect on spectrum investment will lead less money raised for Treasury through auctions.
A 15 percent book tax would hamper spectrum investment. The OECD has said that intangible costs like spectrum investment should be allowed under their proposed Pillar 2 minimum tax. Although their spectrum licenses are leased rather than owned, Europe allows full recovery of spectrum costs. It is inexplicable during a recession that the U.S. would treat this important industry worse than the rest of the world. That is just one reason out of many that lawmakers should reject the Democrat Party’s reckless tax-and-spend reconciliation bill.
Decreased spectrum investment would put the United States behind China in the race for 5G deployment. New York Law School Professor Michael Santorelli warned of the consequences if this were to happen in saying that, “it would be preposterous for American tax policy to deter 5G investment precisely when China and others are subsidizing it.” Additionally, Boston College Law Professor Daniel Lyons argues that, “because the effect will be felt uniquely by spectrum licensees, it will tilt future broadband investment away from wireless solutions and toward wired broadband deployment, reducing the intermodal competition that has historically propelled industry growth.”
While a Manchin-Schumer 15 percent minimum book tax would harm all of America’s leading industries, the tax would have a particularly devastating impact on spectrum investment, putting America behind Communist China in the race for 5G deployment. This is one reason of many that lawmakers in both parties should reject the Manchin-Schumer bill.
Photo Credit: Senate Democrats, CC BY 2.0 https://creativecommons.org/licenses/by/2.0, via Wikimedia Commons