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No Longer the Villain
When President Joe Biden signed the Inflation Reduction Act into law Tuesday, it wasn’t just a victory for the Democratic Party. It was a minor victory for banks.
Why do I say that? After all, the measure aims to increase taxes through a new 1% share buyback excise tax that applies to all publicly traded companies. Banks buy back their shares often, so this will inevitably impact them, says R. Scott Siefers, managing director and senior research analyst at Piper Sandler & Co.
In addition, the law imposes a minimum 15% corporate tax on companies that earn more than $1 billion annually. That is unlikely to have a huge impact on banks. Most already pay at least 15% on corporate taxes since the official corporate tax rate is 21%, Siefers says. U.S. banks qualify for few deductions compared to other industries and don’t usually park their money abroad to avoid paying taxes.
But what’s striking about the law is that it doesn’t go after banks specifically, says Ed Mills, managing director of Washington policy for Raymond James Financial. Instead, the target of Washington ire has moved away from banks to tech companies, which sometimes pay little to nothing in corporate taxes. That industry is the true target of the 15% corporate minimum tax.
“It’s a victory for banks to go through a major piece of legislation and not be the target of any major provision,” he says. He should know. He served for years for Democrats such as U.S. Rep. Carolyn Maloney, D-N.Y. He also worked on a subcommittee of the U.S. House Committee on Financial Services in 2007-08 that was instrumental in bringing about the Dodd-Frank Act, one of the most substantial pieces of legislation for the banking industry in decades. “[Banks] just aren’t the villain they used to be,” Mills says. He cites banks’ participation in the Paycheck Protection Program and says they performed well during the ultimate stress test, Covid-19.
The Inflation Reduction Act isn’t a huge victory for banks when it comes to taxes. On the other hand, it could have been worse. The industry’s reputation has substantially improved in the last several years, and that’s a good thing.
• Naomi Snyder, editor-in-chief for Bank Director
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