WASHINGTON – Senior officials at the US Treasury Department have expressed reservations about the new minimum tax on large corporations proposed as part of President Joe Biden's Build Back Better agenda, according to two people with direct knowledge of the internal discussions.

Officials in the Treasury Department's Office of Tax Policy raised concerns internally in recent weeks that the new 15 per cent minimum tax could lead to unintended consequences — such as limiting clean-energy investment — and prove difficult to implement while making the tax code less efficient, the people said.

Because of the demands of Senator Kyrsten Sinema, D-Arizona, the White House was forced to abandon its initial proposal to raise the tax rate on all large corporations from 21 per cent to 28 per cent.

Instead, Ms Sinema and the White House agreed to a separate new "minimum tax" on companies with more than $1 billion in annual profits.

Dozens of large companies pay little if any federal income taxes because of the way they have structured their balance sheets, something Mr Biden says is unfair and should stop.

The new minimum tax is intended to ensure that all big corporations at least face a 15 per cent rate, but it works by eliminating tax breaks — such as benefits for new capital investments — that Congress has put in place to achieve other policy goals.

The minimum tax now forms one of the key new sources of revenue to pay for Mr Biden's $2 trillion social spending and climate package, estimated to bring in roughly $320 billion of revenue over ten years.

It has come under increasing scrutiny in recent days from a range of business groups and even some Democratic lawmakers, who fear that the plan could diminish the effectiveness of the clean-energy credits in Build Back Better by limiting how much renewable energy companies can write off the costs of new capital investments.

The unease about the plan encompasses high-level officials in the Biden Administration's Treasury Office of Tax Policy as well.

Congress enacted a minimum corporate tax under President Ronald Reagan that was quickly abandoned, and the renewed idea is widely viewed among many Washington tax policy experts as less efficient and effective than simply raising the corporate tax rate — an idea favoured by nearly all Democrats but ruled out by Ms Sinema's opposition.

"You have to think there are going to be a tonne of unintended consequences, because you have not really spent a lot of time thinking through this and the last time you tried it Congress said it did not work," said one person involved in internal discussions, describing the thinking of several high-level Treasury officials.

The White House has been focused on securing passage of Mr Biden's broader spending package and was forced to adjust the plan.

Mr Biden and other senior White House officials have emphasised that the tax package, including the minimum tax, would raise new revenue from the rich and large corporations to fund social investments aimed at helping poor and working class Americans.

The proposal gained traction among some liberals in recent years amid reports that 55 big corporations are effectively able to zero out their tax liability by aggressive use of tax deductions.

Mr Biden repeatedly embraced it as a key campaign pledge.

In a statement, the Treasury Department also pushed back on the idea that it was not fully supportive of the new minimum tax.

Treasury officials said their all tax policies are thoroughly vetted, with staff outlining the pros and cons to each idea.

"As is the case when developing any tax policy, Treasury broadly surveyed considerations relevant to adopting a corporate minimum tax before advancing it as a major proposal in the administration's fiscal year budget," said Alexandra LaManna, a Treasury spokeswoman, in a statement.

"The Build Back Better Act's proposed corporate minimum tax, which is very similar, would prevent the largest 0.00075 per cent of US corporations from paying little or no income tax and raise significant revenue so we can invest in our economy."

White House officials also said that the plan was in keeping with their campaign promises and the President's goals of ensuring that large corporations fund the social spending Bill.

The administration pointed to a body of academic research that it said shows that the impact of limiting companies to immediately deduct capital expenditures will prove limited.

The House version of Build Back Better also gives the Treasury one year to put the new minimum tax into effect, which will give tax officials time to design the new measure.

Still, some independent tax experts say that raising the corporate tax rate would be a more desirable policy solution than the one reached by Ms Sinema and the White House.

Some climate groups say that it would slow the rate of clean-energy deployment the legislation would otherwise achieve by limiting how much companies can write off in the value of large capital asset purchases.

The limits on deduction, for instance, will lead to a "15 to 20 per cent increase in the cost of clean energy and an increase of 820 million metric tons of carbon dioxide compared to the base bill," according to an analysis by the American Clean Power Association.

White House officials have disputed this claim, although the concerns have been publicly shared by some Democratic lawmakers, including Representative Earl Blumenauer, D-Oregon, a climate hawk.

The American Benefits Council also said in a letter last month that the tax could also impact defined benefit pension plans and have a "devastating impact" on pensioners. That is because increases in the value of retirement funds held by employers could be treated as income that is subject to the new minimum tax.

"If you just raise the corporate rate, it's better on efficiency grounds, on equity grounds, on the amount of money that can be raised," said Steve Rosenthal, senior fellow at the Tax Policy Centre, a non-partisan think-tank. "I expect the Biden Administration, like the rest of us, thinks a corporate minimum tax is second-best to a corporate rate increase."

Leading accountants have also raised concerns that the change will lead companies to alter what they report to their shareholders in an attempt to evade the new tax. More than 260 accounting and tax academics have written to congressional leaders warning them of the "politicisation" of the accounting process, which could lead to less transparent information for financial markets.

"Financial statements serve a different purpose than tax returns. That's why we have two of them," said Michelle Hutchens, assistant accounting professor at the University of Illinois at Urbana-Champaign, who helped to spearhead the letter.

The minimum tax emerged during the 2020 presidential campaign as Democrats sought to hammer the GOP over the number of large corporations paying zero in federal income taxes following the tax cuts in 2017.

Mr Biden's campaign plan was initially much more aggressive, aiming to subject more than 1,000 companies to the new tax. That idea was dramatically scaled back when the Treasury released its set of official tax proposals this spring, with the number of companies hit shrinking to roughly a couple of dozen. The agreement between Ms Sinema and the White House applies to companies with annual profits of more than $1 billion, more than doubling the amount initially sought to be hit by Treasury.

"The Treasury people whose job it is to say if something is good tax policy know it is not, but the White House people whose job it is to get Kyrsten Sinema's vote have given no other choice," said one person in communication with multiple senior economic officials in the Biden Administration.

Ms Sinema has been adamant that traditional income and corporate tax rates not be included in the package, but has approved a range of tax hikes that would fall on a much smaller group of American people and firms. She previously told The Washington Post that she is focused on "creating an economic climate that provides opportunity for folks to become financially independent."

The new minimum tax may face logistical challenges but it would help to ensure that corporations pay more after the GOP slashed the corporate tax rate from 35 per cent to 21 per cent.

Reuven S Avi-Yonah, a corporate and international tax expert at the University of Michigan Law School, rebutted some of the concerns about the minimum tax as overblown.

"Traditionally people have said it's better to have lower rates and a broader base — the corporate minimum tax does exactly that," Avi-Yonah said. "This is the best that can be done under this kind of second-best scenario."