To fund their infrastructure and entitlement spending plans, House Democrats are proposing major tax increases over the next decade. They want to raise taxes on businesses, investments, and high earners, but the burden of those increases would ultimately rest on us all in the form of lower wages, smaller retirement accounts, and slower growth.
Let’s take a look at the proposed corporate tax increases projected Raising $ 1 trillion. Such increases would be a lose-lose-lose offer for businesses, workers and the economy for at least ten reasons.
competition. Companies today can locate their automotive, semiconductor and pharmaceutical plants in one of dozen of countries. America will have to compete to attract this investment, but the Democrats’ proposed increase in corporate tax from 21 percent to 26.5 percent would crowd it out. With the increase, our combined federal and state corporate income tax rate would be 30.9 percent, and therefore much higher than that global average of 23.6 percent.
investment. Companies invest to generate after-tax profits. Higher taxes would reduce profits and thus undermine investments in factories, machinery and other assets. Ironically, the Democrats want to boost infrastructure investment, but two-thirds of America’s infrastructure is privately owned and would be hurt by the tax hike.
innovation. The Democrats want to increase research spending on energy, manufacturing, and other activities. but most American research is funded by companies trying to make after-tax profits, and funding would go down if taxes went up. President BidenJoe BidenUN meeting with the USA and France canceled due to scheduling problems Schumer tries to break the GOP blockade against Biden’s state, elects GOP MP Cawthorn compares vaccine mandates with “modern segregation” MORE‘s infrastructure to plan mentions “innovation” 17 times, but a corporate tax increase would reduce innovation by slowing down the process by which companies replace older machines with newer, more advanced machines.
Wages. Despite leftist rhetoric, labor and capital are additions, not opponents. When taxes on one factor of production go up, it hurts the other. If corporate taxes were raised, companies would reduce investment in factories and machinery, which in turn would reduce worker productivity and slow wage growth.
Foreign business. In addition to raising the corporate tax rate, the Democrats would also raise taxes on US corporations’ overseas operations. However, the main purpose of overseas operations is to penetrate overseas markets, in part with products being exported from the United States. When a US corporation increases sales abroad, the workers in the headquarters, research and production here at home benefit. The Democratic tax hike would make US companies less competitive overseas, undermining their domestic operations.
transparency. The corporation tax burden rests on individuals as employees, consumers and shareholders, the latter including all those with retirement plans. Politicians prefer corporate taxes because they hide part of government costs from voters, but it is more transparent and democratic to impose simple and equal taxes on individuals so they can see the full costs of government.
Avoidance and circumvention. When tax rates rise, companies have greater incentive to use loopholes and illegal tricks to cut taxes. These problems have increased because corporate profits are difficult to measure in today’s global economy, but Congress has made it worse by littering tax law with narrow boundaries and complex structures that companies combine and adjust to save money when tax rates are rising.
complexity. The Democrats’ tax plan would add tax complexity by adding dozen of special interest rate breaks that businesses would likely abuse, especially if tax rates rise. For example, the plan provides for more than two dozen green electricity breaks in total $ 235 billion. The big winners of the added complexity would be highly paid lawyers and lobbyists who would find ways to twist and expand it.
Government revenue. The democratic plan would increase government revenue in the short term, but could lose revenue in the long term as companies invest less and avoid and evade more. Finance minister Janet YellenJanet Louise YellenMcConnell, Shelby Provides Government Finance Bill With No Debt Ceiling House Passes Bill To Prevent Closure And Suspend Hillicon Valley Debt Limit – Presented By Xerox – FBI Director Urged Agency To Withhold Kaseya’s Decryption Key MORE asserts that governments are losing money in a “race to the bottom” on corporate taxes, but that is not true. To the 22 high-income nationsthe average corporate tax rate fell from 47 percent in 1980 to 25 percent in 2019, but average corporate tax revenue rose from 2.2 percent of gross domestic product in 1980 to 3.0 percent in 2019. Over time, companies and markets react So on tax changes, tax rates and revenues can move in opposite directions.
Dubious expenses. The Democrats want to raise taxes to fund higher government spending, but the private sector can likely be marginally more productive with the funds. The Democrats did not conduct cost-benefit studies to show that their spending was worth more than the private spending it would replace. Also, when new government spending is needed, nothing prevents state governments from funding it for their own residents.
Democrats want corporations to have their “fair share“As if corporate taxes don’t ultimately reach the people. The truth is that corporate investments in pharmaceutical research, power generation, internet infrastructure, and many other activities benefit us all and would be damaged by corporate tax increases.
Chris Edwards is Director of Tax Policy Studies at the Cato Institute.