President Joe Biden has proposed $ 4 trillion 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 increases will make America 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 US businesses.
The Biden tax increase calls for a rise in the corporate tax rate from 21% to 28%, proposes a new global minimum tax for American companies and creates a tax of 15% on “book income”. These tax increases would be devastating for American companies and would result in US companies paying a 32% after-state tax rate, one of the highest tax rates in developed countries.
For example, the US rate would be higher than major competitors such as the UK (19%), China (25%), Canada (26.5%), Ireland (12.5%), Germany (29.9%) and Japan ( 29.74%)) according to the Organization for Economic Cooperation and Development (OECD).
It would also impose new taxes on American companies if the US lagged behind foreign competitors in promoting innovation. According to a study by the Manufacturing Leadership Council, the United States ranks 26th in tax incentives for research and development when it ranks the 36 industrialized countries in the OECD.
Not only will these tax hikes result in companies creating jobs overseas rather than America, but they will also lead to a return of corporate inversions.
Inversions became increasingly important during the Obama administration as concerns grew 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 them, according to the Congressional Budget Office.
The Tax Cut and Employment Act (TCJA), which went into effect in 2017, solved 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 increases are signed into law. In the United States, 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 in assets, according to a study published by EY.
If the corporate rate had been lower between 2004 and 2017, the study would have estimated that U.S. companies 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 businesses but also American workers in the form of fewer new job opportunities and lower wages.
Numerous studies have shown that between 50% and 70% of corporate income tax is borne by employees. This correlation between lower corporate taxes and the welfare of American workers can also be seen in economic data following the passage of the TCJA. Median household income rose $ 4,440, or 6.8 percent, in 2019 – the largest one-year wage growth in history. During that time, wages for the bottom 25 percent of the wage earner rose faster than the top 25 percent of the workforce, according to the Atlanta Fed.
Biden’s tax hikes will be borne by publicly traded 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 the 53% 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 savings of 80 to 100 million Americans with a 401 (k) and 46.4 million households with 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% (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 to do business, causing jobs to be shipped overseas and business reversals to return.
Alex Hendrie is the Director of Tax Policy at Americans for Tax Reform.