President Joe Biden has proposed $4 trillion in tax increases on American families and businesses. While Biden touts his tax hike plan as a way to ensure corporations “pay their fair share,” the proposal will harm the U.S. economy at a time that it is recovering from the Coronavirus pandemic.
These tax hikes will make American a more uncompetitive place to do business, send jobs overseas, trigger a return of corporate inversions, and make it easier for foreign businesses to acquire U.S. companies.
The Biden plan tax hike calls for raising the corporate rate from 21 percent to 28 percent, proposes a new global minimum tax on American businesses, and creates a 15 percent tax on “book income.” These tax hikes would be devastating to American businesses and would see U.S. businesses pay a 32 percent rate after state taxes, one of the highest rates in the developed world.
For instance, the U.S. rate would be higher than key competitors such as the United Kingdom (19 percent), China (25 percent), Canada (26.5 percent), Ireland (12.5 percent), Germany (29.9 percent) and Japan (29.74 percent), according to data compiled by the Organisation for Economic Co-operation and Development (OECD).
It would also impose new taxes on American businesses at a time the U.S. is lagging behind foreign competitors when it comes to promoting innovation. In fact, according to a Manufacturing Leadership Council study, the U.S. ranks 26th in research and development tax incentives when ranking the 36 developed countries in the OECD.
Not only will these tax increases result in businesses creating jobs overseas instead of America, they will also cause a return of corporate inversions.
Inversions came to prominence during the Obama administration, when concern grew that the uncompetitive tax code was causing U.S. business to merge with, or acquire, a foreign business with the intent of incorporating the new, combined entity overseas. In 2014 alone, American businesses with combined assets of $319 billion announced plans to invert, according to the Congressional Budget Office.
The Tax Cuts and Jobs Act (TCJA) signed into law in 2017 solved this problem and caused businesses to begin coming back to America. This is not the only problem solved by the TCJA that will return if Biden’s tax hikes are signed into law – the U.S. will also see a surge of foreign businesses acquiring American businesses.
Between 2004 and 2017, the high U.S. rate and worldwide tax system meant non-U.S. companies could outbid U.S. companies. As a result, American companies suffered a net loss of almost $510 billion in assets, according to a study released by EY.
If the corporate rate was lower between 2004 and 2017, the study estimates that U.S. companies would have acquired a net of $1.2 trillion worth of businesses, meaning that more than $1.7 trillion in businesses were lost because of the uncompetitive U.S. rate.
A corporate tax increase will not just harm businesses – it will directly harm American workers in the form of fewer new job opportunities and lower wages.
Numerous studies have found that between 50 percent and 70 percent of the corporate tax is borne by workers. This correlation of lower corporate taxes and the well-being of American workers can also be seen in economic data following passage of the TCJA. For instance, in 2019 median household income increased by $4,440 or 6.8 percent – the largest one-year wage growth in history. During this time, wages grew faster for the bottom 25 percent of wage earners than the top 25 percent of earners, according to the Atlanta Fed.
Biden’s tax increases will be borne by publicly traded companies, which will also harm millions of middle-class Americans that are invested in the stocks.
This is not about “the rich.” These tax hikes will harm the 53 percent of Americans that are invested in the stock market, and half of all Gen-Zers and Millennials that have begun trading in stocks as a way to increase their life savings.
In addition, it will reduce the life savings of the 80 to 100 million Americans that have a 401(k) and the46.4 million households that have an individual retirement account. It is important to note that a majority of the assets in these accounts are invested in stocks – of the $6.2 trillion in assets held in 401(k)s, almost 70 percent (or $4.3T) are in stocks.
The fact is, Biden’s plan to raise taxes on businesses will harm American families and businesses as we look to rebuild our economy. It will impact workers, suppress wages, and reduce the life savings of families across the country. It will make the U.S. a less competitive place to do businesses, resulting in jobs being shipped overseas and a return of corporate inversions.