What are Minimum Taxes and Why Might One Favor or Disfavor Them?


Responsible taxation, in the aftermath of any decently full recovery from the COVID-19 pandemic, is bound to require the “plucking” of enough new “feathers” to guarantee plenty of taxpayer “hissing.”  It also, in the view of many, should involve imposing significant new tax liabilities on wealthy individuals and highly profitable corporations, especially those otherwise paying little tax.

Each of these two considerations might have sufficed to assure the re-emergence into public view, in post-pandemic policy debate, of provisions called minimum taxes, if not for one thing. Minimum taxes could not re-emerge after the start of the pandemic, because they had already preceded it into public view. Its fiscal depredations will, however, increase the urgency of comparing them to other techniques for increased “plucking.”

Minimum taxes’ structural merits and defects offer a natural topic of inquiry. They have a significant historical track record that offers instructive guidance. In addition, despite their internal variations and lack of complete distinctness from other fiscal instruments, they have enough in common to ground a detailed analysis. However, the literature to date has tended to focus on particular types of minimum taxes, rather than on their common features or such features’ significance. This article aims to address this gap in the literature, drawing on my own more than thirty years of experience in thinking and writing about avowed minimum taxes, as well as provisions, such as foreign tax credit limitations, that turn out to be similar.

I conclude that minimum taxes have serious drawbacks, and generally make sense (if at all) only if otherwise superior options must be ruled out for reasons of optics or political economy. Yet, given the “compared to what?” question that haunts all real-world tax policymaking, one cannot reasonably say that they should never be used. Still, any such use should generally be contingent, reluctant, and based on understanding their structural deficiencies.