What you need to know
- The Biden Plan provides for an increase in the corporate tax rate from 21% to 28%.
- A recent bipartisan infrastructure deal did not include a corporate tax increase, as Biden had proposed, but the plan is not off the table.
- Even among Democrats, there is no unanimous support for this plan, and the final version could certainly change.
President Joe Biden has proposed a number of changes to income tax rates, including changes to the capital gains tax rate and increases in the upper marginal income tax rate for individuals.
Biden also wants to raise the corporate tax rate. While he proposed the increase to pay for an infrastructure package, it wasn’t included in a $ 579 billion infrastructure deal that Biden and a bipartisan group of senators signed Thursday. However, a source told the Washington Post that Biden still intends to seek a corporate tax rate hike.
Here’s a look at Biden’s proposed corporate tax changes and what they could mean for investors, business owners, and others.
History of the corporate tax rate
The first corporation taxes were paid in 1909 at a. raised rating from 1%. The rate reached 12% for corporate incomes over $ 2,000 in 1918. The all-time high was just under 53% in 1968, 35% from 1993 until it fell to 21% in 2018 under the Tax Cuts and Jobs Act. These are the top prices; There are lower rates for companies making lower incomes.
Biden’s proposed corporate tax rate changes
Biden’s proposed changes to the corporate tax rate are largely included in The American job plan Legislation. Part of this complex legislation includes several changes to corporate tax rates:
- Increase in corporate tax rate to 28%.
- Increase the minimum corporate tax rate to 21% for all US companies, including income from countries that have been tax havens for multinational corporations.
- A minimum tax on the “book income” of companies – the income companies report to their shareholders – of 15%.
- Encouraging other countries to join the US in enforcing a minimum global corporate income tax.
- Make it harder for US companies to reside in tax haven countries to avoid US taxes.
- Deny deductions for jobs that have been relocated abroad.
- Addressing the loophole in the current law promoting offshoring jobs in exchange for expanding more effective R&D incentives.
- Abolition of tax preferences for fossil fuels.
- Stricter tax enforcement against companies.
What do Republicans think of Biden’s corporate tax change?
As you’d expect, many Republicans are not thrilled with plans to raise corporate taxes proposed increase in Biden’s personal taxes. Both Senate minority leader Mitch McConnell and House minority leader Kevin McCarthy have recently and consistently spoken out against these proposed tax increases.
The president has expressed his willingness to reconsider some of these proposed corporate tax increases, including possibly leaving the highest corporate tax rate at 21% if Republicans agreed to a minimum corporate tax rate of 15% and an additional $ 1 billion in infrastructure spending.
Criticism of Biden’s corporate tax from the left
Some Democrats fear the president’s plans to raise corporate tax rates may be unpopular with some voters. Fears exist that Democrats facing tough re-election campaigns for seats in the House and Senate in the 2022 midterm elections may alienate some voters by supporting these corporate tax hikes as well as some of the personal tax hikes in the Biden tax plan.
How does the Biden administration plan to spend the additional tax dollars?
While the tax hike from the recent infrastructure deal has been cut, it is not yet clear how this package will be paid for. It is possible that the proposal will be reintroduced if this agreement fails or is raised outside of the infrastructure plan.
According to the American Jobs Plan, Biden’s corporate tax proposals could raise more than $ 2 trillion over the next 15 years.
What does Biden’s corporate tax plan mean for investors?
It is difficult to predict what effect a corporate tax rate hike, along with the Biden plan, would close a number of loopholes for US multinationals. However, much has been speculated about this.
Some analysts fear that these higher corporate rates would hurt growth companies in areas such as technology and communications. This is in part because the increase in the corporate tax rate would reverse the lowering in the effective tax rate that many of these companies experienced as part of the Trump administration’s tax reforms.
The higher rates, coupled with the closure of a number of corporate tax loopholes, could lead investors to re-evaluate earnings estimates for some growth stocks and those of some US multinationals. Ideally, this would be done on a company-to-company basis, but negative analyst reviews of some companies could impact other stocks within the same industry or market sector.