Inflation Reduction Act’s corporate minimum tax deciders

The bean counters who may get superpowers

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.

Yesterday a bipartisan group of former Treasury secretaries, including Hank Paulson and Timothy 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 over $1 billion in profit a year to pay no less than 15 percent of their “book income” — the amount they report to shareholders but not to the I.R.S. — in federal income taxes. That figure would be adjusted for various factors, including foreign taxes and R.&D. credits.

Here’s where the accounting officials come in. Nearly 50 years ago, the S.E.C. 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. F.A.S.B. — which those in the know pronounce “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 F.A.S.B. 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?

• They are politically connected. Kathleen Casey, who is the head of the nominating committee for F.A.S.B.’s board members, is a former S.E.C. 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.

• They are well compensated. Richard Jones, a former top executive of the accounting firm Ernst & Young who left it to be the chair of F.A.S.B., was paid a base salary of $1 million last year, according to a tax filing.

• They are not diverse. The board is made up of four white men and three white women. A spokesman for F.A.S.B. told DealBook that the organization, which was founded in 1973, has never had a board member of color.

F.A.S.B.’s chair has previously opposed a minimum corporate tax. Last year, Jones said in a speech that he was against basing a minimum corporate tax on book income. He 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, Jones 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.

HERE’S WHAT’S HAPPENING

Walmart is cutting corporate workers. About 200 jobs will be eliminated, including in merchandising, global technology and real estate. Walmart said it was investing in other areas and adding new positions. Warner Bros. Discovery is also reportedly planning layoffs and a restructuring months after it was formed in a merger, and Credit Suisse may lay off thousands as it seeks to cut costs by $1 billion.

Taiwan scrambles to reroute commercial air and sea traffic. China, retaliating against its neighbor for allowing Speaker Nancy Pelosi to visit this week, fired missiles into waters off Taiwan and created an effective blockade that risks shattering a fragile peace in the region. In South Korea today, Pelosi avoided direct comments about China and Taiwan.

Stocks snap back from a losing streak. The major indexes all made gains yesterday, with the S&P 500 up 1.6 percent and the Nasdaq Composite gaining 2.6 percent. Analysts pointed to robust earnings and a report showing that the U.S. services sector continued to expand in July. Stock futures are flat this morning.

The Bank of England announces its biggest interest rate increase since 1995. It raised its rate by half a percentage point this morning, and forecast that the annual rate of inflation would top 13 percent when household energy bills climb in October. That would be Britain’s highest level of inflation in 42 years.

Coal is hot again? Profits at the coal company Glencore more than doubled to a record $18.9 billion in the first half of the year, as the Ukraine invasion strained energy prices and slowed green transition plans. But U.S. coal industry advocates are concerned that a looming climate and tax deal would shrink coal production and the value of coal assets without providing an adequate substitute.

A subpoena blitz in Twitter vs. Musk

Yesterday, Twitter and Elon Musk sent out another blast of subpoenas as they rev up into the discovery mode of their legal battle. Among those Musk subpoenaed were Goldman Sachs and JPMorgan Chase, the banks advising Twitter on its deal to sell itself to Musk. And Twitter, for its part, has sent subpoenas to several people in Musk’s inner circle, as it investigates when — and how — he decided to abandon the deal.

Here’s a look at just some of those on Musk’s side, including much of the PayPal mafia, who were put on notice.

David Sacks: The venture capitalist and founding chief operating officer of PayPal tweeted that he had received a subpoena asking for more information on his tweets about the deal. Sacks co-hosted a conference in May at which Musk expressed one of his first concerns about Twitter’s bots and implied that he might want a deal at a lower price. And Sacks spoke about the deal on Megyn Kelly’s podcast. A spokeswoman for Sacks did not have a comment.

Joe Lonsdale: “I have nothing to do with this aside from a few snarky comments, but got a ‘YOU ARE HEREBY COMMANDED’ document notice,” the co-founder of Palantir tweeted. On CNBC in June, Lonsdale said: “Elon was probably pretty shocked to see they don’t actually know these numbers. And it’s pretty scary to buy something when you don’t know the numbers.” He also noted the broader market decline since the deal was struck, but said he had not discussed this point with Musk. A spokeswoman for Palantir did not respond to a request for comment.

Founders Fund: The venture firm is led by Peter Thiel, who also helped found PayPal and Palantir and has called himself a good friend of Musk. Thiel did not invest in Musk’s Twitter deal, but it is possible that Twitter suspects that Musk, at the very least, spoke to him about it. A spokeswoman for Thiel did not respond to a request for comment.

Also on the list: The Linda Ye and Robin Ren Family Foundation (Robin Ren is a former top Tesla executive); Tesla and SpaceX, both companies that Musk runs; Brookfield, which committed equity to the deal; Ken Griffin, the billionaire founder of Citadel; and dozens of others.

“Mr. Jones, did you know that 12 days ago, your attorneys messed up and sent me an entire digital copy of your entire cellphone with every text message you’ve sent for the past two years?”

— Mark Bankston, a lawyer for families of Sandy Hook shooting victims who are suing the conspiracy theorist Alex Jones for defamation, in a cross-examination yesterday.

Birdies, bogeys and antitrust

Eleven golfers on the Saudi-financed LIV Golf series challenged their suspensions from the PGA Tour yesterday in an antitrust lawsuit that reflects growing pressure to give athletes more autonomy. The suit argues that the PGA Tour is unfairly controlling players with anti-competitive restraints to protect its longstanding monopoly on professional golf.

“We’ve brought this action on behalf of professional golfers to vindicate their rights to play where and when they choose and to ensure professional golf innovates and grows,” John Quinn of Quinn Emanuel, one of the plaintiffs’ lawyers, said in a statement to DealBook.

The LIV Golf circuit is bankrolled by the sovereign wealth fund of Saudi Arabia. It poached several prominent players from the PGA Tour with mammoth upfront payments and appearance fees. Phil Mickelson, a six-time major-tournament winner, reportedly received $200 million. The circuit has become a lightning rod for human rights campaigners who accuse Saudi Arabia of using sports to launder its reputation.

The Tour is “an entrenched monopolist with a vice-grip on professional golf,” the complaint argues. Before LIV Golf’s recent entry on the scene, elite golfers “had no meaningful option” but to work with the Tour, according to the athletes’ lawyers. Now that LIV is luring them with big prizes, the Tour is punishing those “who have the temerity to defy the Tour and play in tournaments sponsored by the new entrant,” they argue.

The Tour may argue that the renegade golfers are “free-riding.” The organization has invested time and money and given golfers a platform to build their careers, said K. Craig Wildfang, an antitrust law expert and a former special counsel to the Justice Department’s antitrust division. Wildfang, who is not involved in the case, says it could potentially take years to resolve. The PGA Tour did not respond to DealBook’s request for comment.

Athletes may have the wind at their backs. The pro golfers argue that the Tour’s illegal restrictions limit their ability to earn, a sentiment reflected in similar challenges playing out in other sports. Members of the U.S. women’s soccer team sued the country’s soccer federation for gender discrimination, scoring a settlement this year. Student athletes have been chipping away at an N.C.A.A. payments ban, and swimmers have been fighting an antitrust battle against their sport’s governing body.

THE SPEED READ

Deals

Policy

• Gov. Gavin Newsom is using Hollywood concerns over new abortion restrictions in other states to get studios to do more business in California. (LA Times)

• The E.U. is reportedly investigating the Google Play store for antitrust violations. (Politico)

• “Why America’s Chinese Tech Ban Didn’t Stick” (NYT)

Best of the rest

• Recession concerns and decreased viewing have wiped out nearly $400 billion in value for large media companies. (FT)

• Triller, a TikTok wannabe, promised millions to Black creators but has paid them erratically. (WaPo)

• Podcast guests are paying up to $50,000 to appear on top shows. (Bloomberg)

• Jeff Bezos’ megayacht was towed away from a Dutch shipyard after getting egging threats. (NY Post)

David F. Gallagher contributed to today’s DealBook.

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