By Footwear News
This article was published in Footwear News August 8, 2022. While it references large retailers, this legislation could impact the sewn products industry in many ways. The Inflation Reduction Act was signed into law August 16, 2022. Learn more about the legislation at the links below:
The senate on Sunday passed the Inflation Reduction Act, a legislation package meant to help reduce inflation with new proposed tax rules and cost cuts.
As the bill moves to the House of Representatives and awaits approval by President Joe Biden, it is becoming clear which industries and companies will be most impacted by this new legislation.
The bill is meant to help invest in issues like climate change, reduce prices on drugs for Medicare recipients and fix the federal deficit. Much of this would be paid for with new tax rules on major companies.
For large corporations, including Nike, the biggest impact of the bill would come in the form of new 15% minimum tax on corporate profits from businesses that make at least $1 billion a year. According to an estimate from the Joint Committee on Taxation, this would help raise $313 billion over the next ten years.
The law would also further define the way companies may announce profit to investors and the government by prohibiting them to use different figures for each entity that might contain certain tax loopholes.
“The American people are sick and tired of companies like AT&T, Federal Express, and Nike making billions of dollars in profits and paying nothing in federal income tax,” said senator Bernie Sanders (I-Vt.) in his Tuesday public comments regarding the Act.
According to the left-leaning Institute on Taxation and Economic Policy, 55 large, profitable corporations paid no federal income taxes in 2020. The research organization found that in 2020, Nike did not pay any federal income tax on close to $2.9 billion of U.S. pretax income last year, and was able to obtain a $109 million tax rebate. In its 2020 fiscal year, Nike reported a net income of $2.5 billion and revenues that fell 4% to $37.4 billion.
FedEx, Michaels, Salesforce and Qurate Retail Group were also among the listed companies that avoided corporate income taxes in 2020.
According to its supporters, this new law will prevent these major corporations from avoiding certain taxes.
“Ensuring the wealthiest corporations in this nation pay a minimum amount of tax is a no-brainer,” said Amy Hanauer, executive director of the Institute on Taxation and Economic Policy, in a statement. “There is absolutely no reason that some companies should be able to game the system while others are paying their fair share. The IRA will help get us to a more level playing field.”
The institute also applauded the bill’s proposed reinstatement of $80 billion in enforcement budget for the IRS to continue auditing large corporations and introducing 1% tax on companies that repurchase their own stock.
President and CEO of the nonpartisan policy institute Center for American Progress (CAP) Patrick Gaspard applauded the bill for “restoring fairness to the tax system by closing loopholes that have allowed wealthy tax cheats to avoid paying their fair share for too long.”
According to CAP, 19 profitable Fortune 100 corporations said they owed little or no taxes for 2021, including Amazon, whose effective federal income tax rate was 6.1% in 2021, with $35.1 billion in U.S. earnings and $2.1 billion in federal income taxes. Like Nike, Amazon will likely be impacted by this new law.
FN has reached out to Nike and Amazon for comment.
In June, Nike reported that Q4 income before taxes was down by 25.9% due to higher expenses.
“While a tax benefit helped to reduce this to a 5% decline after taxes, the point remains that Nike, like other retailers, is facing — and will continue to face — higher costs in areas like freight, all of which will compress margins,” said Neil Saunders, managing director of GlobalData, in a statement.