Biden and congressional lawmakers have proposed several changes to the tax code, including raising the corporate tax rate to 28 percent from the current 21 percent.
The Tax Foundation revealed in a new report released Feb. 24th that the Biden administration’s plans would eliminate 159,000 jobs, depress wages by 0.7 percent, and reduce long-run economic output by 0.8 percent.
On the campaign trail, Biden also stated he would seek a new 15 percent minimum book tax on corporations with over $100 million in book income, in addition to imposing tax penalties for some types of offshoring activity.
Tax Foundation Senior Policy Analyst Garrett Watson and Vice President of Federal Tax and Economic Policy William McBride argued in the report that the minimum book tax would complicate and distort the tax code, while generating little revenue.
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McBride and Watson estimated that the minimum tax would reduce long-run economic output by about 0.21 percent.
“President Biden’s proposed tax hike would reduce American economic output during a time when we need to maximize economic growth to reach our country’s pre-pandemic growth trend and return to full employment,” McBride and Watson wrote in the report.
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“Lowering the corporate tax rate to 21 percent brought the U.S. closer to the OECD average, reduced the incentive for corporations to invert or shift profits, and increased investment incentives that lead to a higher growth rate,” McBride and Watson noted.
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“Increasing the corporate income tax would undermine the progress policy makers made four years ago,” the pair argued, noting that raising the corporate tax rate to 28 percent would raise the federal-state combined corporate tax rate in the United States to 32.34 percent, the highest such rate out of all 37 member countries of the Organisation for Economic Cooperation and Development (OECD).
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McBride and Watson argued that a high corporate tax rate relative to other OECD countries would encourage profit shifting abroad and, more generally, out of the U.S. corporate sector.
“As the U.S. bounces back from intertwined public health and economic crises in 2021, avoiding harmful tax increases and pursuing reform opportunities in corporate taxation should be the areas of focus,” McBride and Watson argued.
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The call to avoid raising the corporate tax rate was also made by the U.S. Chamber of Commerce, which hailed the TCJA for driving job growth and other benefits.
“We worked for 31 years before finally achieving tax reform that, among other things, lowered the corporate tax rate to a level that made us not only competitive in the global economy, but made it attractive to do business here,” said Caroline Harris, vice president of tax policy and economic development at the Chamber of Commerce, in a recent statement.
“It is imperative that we preserve this competitive rate, to attract foreign investment to the United States, to increase capital for investment, and to drive job creation in the United States,” she added.
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