Deputy Treasury Secretary Adeyemo talks new corporate tax proposals

President Biden’s State of the Union address was a doozy, as highly scripted, meticulously stage-managed bits of political theater go. But setting optics aside, Biden offered substantial new corporate tax proposals that would, among other things, raise the corporate tax rate to 28%, increase the minimum corporate tax to 21%, boost the stock buyback tax to 4% from 1%, eliminate deductions for employee salaries over $1 million, and close corporate jet loopholes.

If they pass, that’s a lot of change to the corporate tax structure. To help understand Biden’s proposals, CFO Brew spoke with Wally Adeyemo, deputy secretary of the Treasury Department, about the thinking behind them, their chances of passage, and what finance professionals should be thinking about.

This interview has been edited for length and clarity.

The president offered some significant proposals for corporate taxation. How would you describe them?

I would describe the president’s proposals last night as aimed at fundamentally doing two things. One, reducing cost in investing in America, and modestly increasing taxation for wealthy Americans and corporations in the country who have done quite well over the last three years.

Fundamentally, what the president is trying to accomplish is both making investments which we’re doing through things like the Inflation Reduction Act, the infrastructure package, and the CHIPS and Science Act, while making sure we also pay for our bills. And the best way to do that is to make sure that those who can best afford to help contribute to that over time.

When you mention investment, one of the more interesting proposals is the increase on the stock buyback tax. What's the goal there?

Part of this is, for us, creating both a way to earn revenue in order to help us make sure that we reduce the deficit over time, because we recognize that we need to be prudent about our finances. The key thing that we have to think about is, what are we using this money to invest in? We’re making investments in things like childcare. When I talk to CEOs around the country, the thing they often say to me is that “demand remains strong, but the thing that I need is workers.” One of the big inhibitors to getting people into the labor force is child or elder care, where we want to make investments.

So part of the goal here is to make sure that we’re raising revenue from the parts of the economy that have done best, to invest in the long-term growth of the economy. That’s why the president made the proposal with regard to stock buybacks, but more broadly speaks to his approach when it comes to tax policy, which is to make sure that anyone who makes under $400,000 is not going to see a tax increase.

For organizations paying that tax, how are you looking to change how they use some of that money for their own investments?

What we’ve done throughout the administration is call on companies to make more investments here in America, to unlock the productive capacity of our economy. And making those investments here we think is something that they should do with their profits, in order to make sure that they’re growing the economy and growing their businesses here.

One of the things the president spoke to as well was the idea of profit shifting, and trying to move profits out of America to try and remove yourself from taxation. We want to make sure that our tax policy, including the corporate minimum tax, helps to put us in a position where the revenues you earn here in America are ultimately going to be taxed here to the benefit of the American people.

You have the ability to make the decision to do stock buybacks, and if you do, there’s going to be a tax. But you also have the ability to invest in our economy. And there, the president’s made very clear that he supports business tax credits, like the R&D tax credit or other deductions that are going to encourage investment in the US economy. So our goal here is really to encourage more and greater investment in the economy by businesses.

It’s no secret that it’s virtually impossible to get anything done in Washington at this moment. What’s the plan for making some of these proposals a reality?

I don’t agree with that premise. The president’s gotten more than 400 bills done that have been bipartisan. And my view is that when you look at some of the hardest things we have to do in this country and you look underneath the hood, there’s a bipartisan majority for the things that the president has called for, not only in the country, but also in Congress.

I think the thing he’s going to do is focus on making his case to the American people on why we’ve got to make tax policies that invest in the American people, and ask the wealthy to pay their fair share, and also take steps to cut costs.

What do corporate finance and tax professionals need to be thinking about in the 6–18 month timeframe as far as these proposals go?

So your audience are stakeholders that I talk to on a regular basis. I think from the standpoint of corporate finance professionals and tax professionals, the thing to think through is how to help the businesses they work with as they’re thinking about making investments in the United States.

Ultimately, they create new opportunities for financial professionals, as we’re thinking about how we build an economy that not only works for the owners of capital, but works for workers. That’s why we’ve structured these bills in a way where, in addition to having incentives for businesses to build the plant, we’re creating incentives for them to hire workers and pay them things like a prevailing wage.

So as corporate America makes the decisions to invest in America, they’re going to need the help of the entire financial ecosystem. And we hope that your readers will partner with our government to make sure that we’re making the investments that America needs to unlock the unrealized potential of our economy.