The Senate could vote as soon as this week on a climate and tax bill that, if passed, would hand a good deal of power to an obscure group of accountants in Norwalk, Conn., 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 Inflation Reduction Act, saying it would fight inflation and address climate issues. The group also said the legislation was “financed by a prudent tax policy.”
Much of the bill will be funded by a 15 percent minimum tax on corporate profits. That’s meant to address a longstanding problem: Many profitable companies, including giants like Amazon, pay little to no federal income taxes, taking advantage of legitimate tax breaks, but also using strategies that many believe are solely about avoiding taxes.
The legislation would require companies that make more than $1 billion in annual profit to pay no less than 15 percent of their “book income” — the amount they report to shareholders but not to the IRS — in federal income taxes. That figure would be adjusted for various factors, including foreign taxes and research and development credits.
Here’s where the accounting officials come in. Nearly 50 years ago, the Securities and Exchange Commission gave responsibility for writing and updating its “generally accepted accounting principles,” which determine how quarterly and annual profits are calculated, to the Financial Accounting Standards Board, a private organization funded by corporations and overseen by a nonprofit group, the Financial Accounting Foundation.
FASB — pronounced “fazbie” — is run by a seven-member board of accountants and professional investors. Under the new tax regime, one way to tweak corporate America’s tax bill would be to get FASB to rewrite how companies calculate their profits, which is squishier than you might think.
So what do we know about the accounting rule makers and the leaders of the foundation that oversees them, who could all of a sudden have a big say in tax policy?
The group lacks diversity: The board is made up of four white men and three white women. A spokesman for FASB told DealBook that the organization, which was founded in 1973, has never had a board member of color.
It’s also politically connected: Kathleen Casey, the head of the board’s nominating committee, is a former SEC commissioner and a former chief of staff for Senator 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 top executive of the accounting firm Ernst & Young who left to be the chair of FASB, was paid a base salary of $1 million last year, according to a tax filing. The lowest salary among the board members was still north of $800,000.
What’s more, Mr. Jones does not appear to be a fan of the minimum corporate tax. Last year, he said in a speech that he was against basing a minimum corporate tax on book income.
Mr. Jones said the group’s role was to set accounting rules that best convey the health of a company. Using book income to determine tax payments would inject public policy into financial accounting, he said, making it hard for his organization to do its job.
“It would be an additional pressure, there’s no doubt, on our mission and what we do,” he said.