President Joe Biden has proposed $ 4 trillion in tax increases for American families and businesses. As Biden announces his tax hike plan to ensure companies “pay their fair share,” the proposal will hurt the US economy at a time when it is recovering from the coronavirus pandemic.
These tax hikes will make Americans a less competitive place to do business, send jobs overseas, trigger a return of corporate inversions, and make it easier for foreign companies to acquire U.S. businesses.
The tax hike in the Biden Plan includes raising the corporate tax rate from 21 to 28 percent, proposing a new global minimum tax for American companies, and creating a 15 percent tax on “book income”. These tax increases would be devastating for American companies and would result in US companies paying a 32 percent post-state tax rate, one of the highest rates in developed countries.
For example, the US rate would be higher than major competitors like the UK (19 percent), China (25 percent), Canada (26.5 percent), Ireland (12.5 percent), Germany (29.9 percent) and Japan (29.74 percent) loudly Data compiled by the Organization for Economic Co-operation and Development (OECD).
It would also impose new taxes on American companies if the US lagged behind foreign competitors in promoting innovation. Indeed after to a Manufacturing Leadership Council studyThe US ranks 26th in research and development tax incentives when it ranks the 36 developed countries in the OECD.
These tax hikes will not only result in companies creating jobs overseas rather than America, but also a return of corporate inversions.
Inversions became increasingly important during the Obama administration as concerns increased that uncompetitive tax laws resulted in U.S. companies merging or acquiring overseas companies to create the new, combined company overseas. In 2014 alone, American companies with total assets of $ 319 billion announced plans to reverse the situation. according to to the budget office of the Congress.
The Tax Cut and Employment Act (TCJA), signed in 2017, resolved this problem and prompted companies to return to America. This isn’t the only issue resolved by the TCJA that will return when Biden’s tax hikes are signed into law. In the US, foreign companies will also see an increase in American companies.
Between 2004 and 2017, the high US tax rate and global tax system meant that non-US companies could outbid US companies. As a result, American companies suffered a net loss of nearly $ 510 billion study published by EY.
If the corporate rate had been lower between 2004 and 2017, the study would have estimated that U.S. corporations would have acquired $ 1.2 trillion net worth of businesses, meaning more than $ 1.7 trillion in businesses would have been lost due to the uncompetitive US rate.
A corporate tax hike hurts not only companies but also American workers in the form of fewer new job opportunities and lower wages.
Numerous Studies found that between 50 percent and 70 percent corporate income tax is borne by the employees. This correlation between lower corporate taxes and the welfare of American workers can also be seen in economic data following the adoption of the TCJA. For example, the median household income in 2019 elevated $ 4,440, or 6.8 percent – the largest year-long wage growth in history. During this period, wages rose faster for the bottom 25 percent of the wage earners than for the top 25 percent of the employed. according to to the Atlanta Fed.
Biden’s tax hikes will be carried by public companies, which will also hurt millions of middle-class Americans who are invested in the stocks.
This is not about “the rich”. These tax hikes will hurt 53 percent of Americans who invest in the stock market and half of all Gen-Zers and Millennials who started trading stocks to increase their life savings.
In addition, it will reduce the life saving of the 80 to 100 million Americans with a 401 (k) and the46.4 million households who have an individual retirement account. It’s important to note that much of the assets in these accounts are invested in stocks – of the $ 6.2 trillion in assets in 401 (k) s, nearly 70 percent (or $ 4.3 billion) are in Shares.
The fact is, Biden’s plan to levy corporate taxes will harm American families and businesses as we try to rebuild our economies. This will affect workers, suppress wages and reduce life savings for families across the country. This will make the US a less competitive place for business, causing jobs to be shipped overseas and business reversals to return.
Alex Hendrie is Director of Tax Policy at Americans for Tax Reform.