Democrats plan to tax share buybacks and partnerships

The finance committee is also looking at changing the rules that large business partnerships have used to avoid taxation and evade Internal Revenue Service audits. Congress wrote the rules when partnerships were dominated by small businesses, such as doctor’s offices. But increasingly, partnerships are large companies or subsidiaries of large companies, arranged in complex overlapping configurations to allow their owners to shift profits, losses and deductions to evade tax.

Some 70 percent of partnership income now goes to the richest 1 percent of wage earners, and tax minimization methods have become so complex that ordinary IRS agents are not allowed to perform certain audits without it. assistance from senior IRS attorneys.

“The constant theme running through our tax code is that paying taxes is compulsory for workers, but optional for wealthy investors and mega-businesses. This is especially true when it comes to midsize businesses and partnerships, the preferred tax avoidance tools of executives, ”said Wyden.

To change all that, Democrats want to prevent partnerships from playing with the system. Under the new rules, if two partners who were members of the same corporate group sold a shared asset, the profits would have to be divided equally, not disproportionately distributed in order to maximize the tax benefits. Likewise, partnership debt, which allows partners to take deductions and claim cash distributions, could not be transferred from one partner to another to reduce their tax obligations.

These changes, without any increase in tax rates, would bring in $ 172 billion over 10 years, according to the Joint Committee on Taxation, Congress’ official tax pointer.

While that would generate less revenue, around $ 100 billion, the tax on redemptions could be the more ambitious measure. Over the past decade, Apple has been the king of stock buybacks, spending $ 423 billion to retire its shares. Microsoft, far behind, has spent nearly $ 129 billion.

Some Democrats preferred to set the tax at such a high level that the buybacks would make no economic sense. But Democratic tax helpers said Thursday they were trying to balance the desire to reduce share buybacks with the need to increase revenue. At the very least, a 2% tax on buybacks could encourage companies to use their excess cash to pay higher dividends, on which shareholders pay taxes.

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