The Senate could vote as early as this week on a climate and tax bill that, if passed, will give a lot of power to an obscure group of accountants in Norwalk, Connecticut, according to the DealBook newsletter.
On Wednesday, a bipartisan group of former Treasury secretaries, including Henry M. Paulson Jr. and Timothy F. Geithner, endorsed the bill, the Cut Inflation Act, saying it would fight the inflation and solve climate problems. The group also said the legislation was “funded by prudent fiscal policy”.
Much of the bill will be financed by a minimum tax of 15% on corporate profits. This aims to address a long-standing problem: Many profitable companies, including giants like Amazon, pay little or no federal income tax, taking advantage of legitimate tax breaks, but also employing strategies that many believe , are all about avoiding taxes.
The legislation would require companies making more than $1 billion in annual profits to pay at least 15% of their “book income” — the amount they report to shareholders but not the Internal Revenue Service — in federal taxes on Income. This figure would be adjusted for various factors, including foreign taxes and research and development credits.
This is where accountants come in. Nearly 50 years ago, the Securities and Exchange Commission assigned responsibility for writing and updating its “Generally Accepted Accounting Principles,” which determine how quarterly and annual profits are calculated. Financial Accounting Standards Boarda private organization funded by corporations and overseen by a non-profit group, the Financial Accounting Foundation.
The FASB—pronounced “fazbie”—is headed by a seven-member board accountants and professional investors. Under the new tax system, one way to change the US corporate tax bill would be to get the FASB to rewrite the way companies calculate their profits, which is more squishy than you might think.
So what do we know about accounting policymakers and the leaders of the foundation that oversees them, who might suddenly have a say in tax policy?
The group lacks diversity: the board is made up of four white men and three white women. A FASB spokesperson told DealBook that the organization, founded in 1973, has never had a board member of color.
It’s also politically related: Kathleen Caseythe head of the board’s nominating committee, is a former SEC commissioner and former chief of staff to Sen. Richard Shelby, Republican of Alabama, who has long called for lower taxes for corporations and the wealthy .
And its members are well paid: Richard Jones, a former senior accounting firm Ernst & Young who quit to be chairman of the FASB, received a base salary of $1 million last year, according to a tax return. The lowest salary among council members was still north of $800,000.
Moreover, Mr. Jones does not seem to be a fan of the corporate minimum tax. Last year he said in a speech that he was against basing a minimum corporate tax on book income.
Mr Jones said the role of the group was to establish the accounting rules that best reflect the health of a business. Using accounting income to determine tax payments would inject public policy into financial accounting, he said, making it difficult for his organization to do its job.
“It would be additional pressure, no doubt, on our mission and what we do,” he said.