President Joe Biden’s plans to raise the corporate tax rate would have a chilling effect on economic growth, depress wages, and lead to job losses, according to the Tax Foundation, a tax policy nonprofit.
Biden and congressional lawmakers have proposed several changes to the tax code, including raising the corporate tax rate to 28 percent from the current 21 percent - the level that the Trump administration brought it down to from 35 percent.
The Tax Foundation said in a new report released Feb. 24 that the Biden administration’s plans to hike the tax rate for corporations would eliminate 159,000 jobs, depress wages by 0.7 percent, and reduce long-run economic output by 0.8 percent.
A more modest corporate tax increase to 25 percent would lead to 84,200 job losses, see wages fall by 0.4 percent, and squeeze gross domestic product by 0.4 percent, the report found.
On the campaign trail, Biden also said he would seek a new 15 percent minimum book tax on corporations with more than $100 million in book income, in addition to imposing tax penalties for some types of offshoring activity.
Tax Foundation Senior Policy Analyst Garrett Watson and Vice President of Federal Tax and Economic Policy William McBride argued in the report that the minimum book tax would complicate and distort the tax code while generating little revenue.
McBride and Watson estimated that the minimum tax—in combination with all of Biden’s other tax proposals—would reduce long-run economic output by about 0.21 percent.
“President Biden’s proposed tax hike would reduce American economic output during a time when we need to maximize economic growth to reach our country’s pre-pandemic growth trend and return to full employment,” McBride and Watson said in the report.
Prior to 2017, when then-President Donald Trump enacted the Tax Cuts and Jobs Act (TCJA), the United States was suffering a slowdown in economic growth, including historically low growth in wages and productivity, and new business formation in retreat. Meanwhile, a significant body of research suggested that the pre-2017 corporate tax level of 35 percent was a drag on growth.
“Lowering the corporate tax rate to 21 percent brought the U.S. closer to the OECD average, reduced the incentive for corporations to invert or shift profits, and increased investment incentives that lead to a higher growth rate,” McBride and Watson said in their report.
“Increasing the corporate income tax would undermine the progress policymakers made four years ago,” the pair argued, noting that raising the corporate tax rate to 28 percent would raise the federal-state combined corporate tax rate in the United States to 32.34 percent, the highest such rate out of all 37 member countries of the Organization for Economic Cooperation and Development (OECD).
McBride and Watson argued that a high corporate tax rate relative to other OECD countries would encourage profit shifting abroad and, more generally, out of the U.S. corporate sector.
“As the U.S. bounces back from intertwined public health and economic crises in 2021, avoiding harmful tax increases and pursuing reform opportunities in corporate taxation should be the areas of focus,” McBride and Watson argued.
The call to avoid raising the corporate tax rate was also made by the U.S. Chamber of Commerce, which hailed the TCJA for driving job growth and other benefits.
“We worked for 31 years before finally achieving tax reform that, among other things, lowered the corporate tax rate to a level that made us not only competitive in the global economy, but made it attractive to do business here,” said Caroline Harris, vice president of tax policy and economic development at the Chamber of Commerce, in a recent statement.
“It is imperative that we preserve this competitive rate, which was enacted to enable American businesses to compete successfully in the global economy, to attract foreign investment to the United States, to increase capital for investment, and to drive job creation in the United States.”