Business taxes are rising just as the U.S. economy heads into troubled waters

A number of business tax hikes come just as the U.S. economy faces an increased risk of a recession that threatens to prolong financial trouble for many companies and consumers.

Businesses will face a higher federal tax burden starting this year thanks to several major changes included in the health care spending and climate change bill that Democrats passed over the summer. On top of that, key provisions of the 2017 Republican tax overhaul will be phased out this year.

Combined, the tax increases are expected to cost businesses about $115 billion this year — a big increase from previous years, according to the Joint Committee on Taxation.

“We are very concerned about the impact of tax increases in a recession,” Chris Nettram, managing vice president of tax and domestic economic policy at the National Association of Manufacturers (NAM), told FOX Business. “Some of the items that have already gone into effect that Congress failed to repeal late last year are causing a lot of pain for our members.”

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US Capitol (Anna Rose Layden/Getty Images/File/Getty Images)

Among the increases taking effect this year is a 15 percent minimum tax on corporations, which is based on the profits they publicly report in their financial statements to shareholders. The minimum book tax would only affect companies that reported more than $1 billion in revenue. The tax — a key feature of the Inflation Reduction Act — would affect about 200 of the nation’s largest corporations with profits above $1 billion and which pay less than the current 21 percent business rate, according to Democrats.

This expense account also includes a 1% tax on share buybackwhich will only apply to publicly traded companies.

Experts expect the two taxes to drag on profits for 2023, p Goldman Sachs forecasting a 1.5% decline per share for S&P 500 companies. The earnings cut is expected to hit industries such as healthcare and IT due to the low effective tax rate.

Meanwhile, UBS strategists led by Solita Marcelli predicted the new taxes would have “a very minimal drag of 1% on S&P 500 earnings per share, although some companies will be more affected than others.”

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President Joe Biden signs the Inflation Reduction Act of 2022 (climate change and health care bill) into law at the White House on August 16, 2022. (Demetrius Freeman/The Washington Post via Getty Images/Getty Images)

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These changes come on top of other business tax increases that were enacted last year to help pay for the 2017 Republican tax cuts and will remain in place until 2026. This includes phasing out 100% bonus depreciation , a tighter cap on interest deductibility and an increase in international tax rates.

Another provision requires businesses to amortize deductions for research and development expenses over five years, rather than taking them all at once. Nearly 180 chief financial officers asked lawmakers in November to reverse course and repeal the law before the end of the year, but Congress failed to reach a deal before its final session in December.

Aerospace and defense company Raytheon Technologies said in October that the change had already caused its tax bill to jump by $1.5 billion.

Raytheon

Aerospace and defense company Raytheon Technologies said in October that the change had already caused its tax bill to jump by $1.5 billion. (AP Photo/Elise Amendola/File/AP Newsroom)

Goldman Sachs sees changes in R&D, interest and bonus depreciation raising the effective corporate tax rate this year by 1.6 percentage points, which equates to a “small” reduction in revenue.

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“Corporate tax policies that take effect in 2023 should have a small hit on aggregate S&P 500 earnings, but the impact will vary across sectors,” the bank said in a research note earlier this month.

Netram said NAM is lobbying lawmakers to roll back the changes, especially on research and development, and indicated it has bipartisan and bicameral support for doing so.

“For this Congress, we’re starting from a really strong place,” he said. “There is broad support for stopping these tax increases from taking effect.”

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