Like much of the national weather winter storm Uri (excuse the pun), the White House announced that President Joe Biden’s tax plan to increase revenue includes increasing the company’s rate from 21% to 28%.
Some stats on the change from Alex Hendrie of RealClearPolitics:
The tax hike in Biden plans to raise the corporate tax rate from 21% to 28%, propose a new global minimum tax for American companies and impose 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% post-state tax rate, one of the highest 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 US ranks 26th in tax incentives for research and development when it ranks the 36 industrialized 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 them, according to the Congressional Budget Office.
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.
The TCJA changed much of the tax code to lower individual and corporate tax rates. The idea was to put more “fat”, so to speak, on the economic wheels by devoting less spending to increase job creation and motivate companies to repatriate dollars.
This seemed to work at least temporarily as GDP continued to grow. It is worth noting, however, that this does not mean that prosperity gaps or “middle class rebuilding” have occurred, but that the entire economy appeared to be moving faster overall.
The COVID hit and freed the economy. Compared to most countries, the United States has not been able to offer the same incentive and sustainability as other places in the world.
Why? Because we were broke.
Why were we broke? Because the country has continued to spend way beyond its means and borrowing up to its debt limit in the hopes that the economy would eventually move on from debt.
Of course it never worked.
As discussed last week, if taxes are to go up, perhaps we should first find a better way to manage finances at the federal level? Why not redirect some of that unnecessary defense spending to local infrastructure projects that create jobs? Or even civil protection, which technically falls under the definition of “defense” for this country?
Defense isn’t the only budget above what is considered “responsible” spending, but it’s the most noticeable number.
Investing in America to create jobs and drive the recovery from COVID-19 should be the goal of any government right now without clashing with tax laws. The constant pendulum swinging from one economic mantra to another causes nothing but problems with no long-term consistency.
Finding a better way to manage and spend tax revenue will bring more confidence to the American people. If the federal government were to work with an efficiency of 80%, the citizens would be more likely to agree to a tax increase.
But until that happens, it will be time for the government to spend smarter, reduce debt, and invest in local projects that simulate the economy, protect infrastructure, and create jobs.