The Biden administration has proposed a corporate tax increase plan that it says will maintain the competitiveness of the U.S. and help grow the economy. The White House has tried to make this case by misrepresenting the real impact of the tax increase proposal, suggesting that it would merely pare back the 2017 tax cut and have little impact on the economy.
President Joe Biden and other administration officials repeatedly stress that they are only partially rolling back the corporate tax rate — to 28% — after the 2017 law slashed it from 35% to 21%. They argue this rate adjustment will not hurt U.S. competitiveness and will only restore corporate revenue levels, which had fallen dramatically due to the 2017 tax cuts.
But this argument is misleading, and it hides the real impact the Biden tax increases will have on American corporations, the economy, and international competitiveness. In reality, a large portion of the 2017 corporate tax cuts were paid for by more than $1 trillion of other corporate tax increases.
The rate cut of nearly $1.5 trillion was offset by corporate tax increases of nearly $1.2 trillion. More than three-quarters of the tax cut was paid for through tax increases on corporations from loophole closings, base broadening, and international tax reforms.
According to the estimates from the Congressional Joint Tax Committee, the net corporate tax cut was only about $300 billion over 10 years.
Under the Biden tax increase proposal, the nearly $1.2 trillion in corporate tax increases enacted in the 2017 law will stay on the books. His new corporate tax increases ($1.8 trillion over 10 years and about $2.5 trillion over 15 years) will be piled on top of these tax increases. That means that about $3 trillion of tax increases will be heaped on American corporations just as we are coming out of the worst economic downturn in years.
The cumulative impact of these tax increases will hurt corporate investment and productivity just as the economy begins to recover. These tax increases will result in lower wages for workers, higher prices for consumers, and lower investment returns for investors, including pension funds and retirement accounts.
These tax increases will hurt American competitiveness, pushing the U.S. corporate tax rate back up to the highest rate in the world among industrialized countries and imposing other tax increases on the economy.
As we begin to recover from the 2020 downturn, now is not the time to pile trillions of dollars of tax increases on our economy.
Bruce Thompson was assistant secretary of treasury for legislative affairs during the Reagan administration and director of government relations for Merrill Lynch for 22 years.
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