President Biden proposed a 7-point hike in the corporate tax rate to 28 percent, a new minimum book tax on corporate profits, and higher taxes on international activity. We estimated these proposals would reduce the size of the economy (GDP) by 1.6 percent over the long run and eliminate 542,000 jobs.
As part of President Biden’s proposed budget for fiscal year 2023, the White House has once again endorsed a major tax increase on accumulated wealth, adding up to a 61 percent tax on wealth of high-earning taxpayers.
The arguments for a new surtax on corporate book income misconstrues why there are differences between a corporation’s taxable income and book income.
Whether we use corporate tax collections as a portion of GDP, average effective tax rates, or marginal tax rates, each measure shows that the U.S. effective corporate tax burden is close to or above the average compared to its OECD peers. Raising corporate income taxes would put the U.S. at a competitive disadvantage, whether one looks at statutory tax rates or effective corporate tax rates.
While the focus has been on the federal rate, it is important to include state tax rates when thinking about the total tax burden on corporate income.
An increase in the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, higher than every country in the OECD, the G7, and all our major trade partners and competitors including China.
The economics is clear: If Biden wants to maximize the economic benefits of his $3 trillion in new infrastructure spending, he should cut $3 trillion in other government spending to pay for it.
The international experience with wealth taxes should serve as a warning to the U.S. A wealth tax would reduce the size of the economy, shrink national income, and significantly distort international capital flows.
Biden has not specified how he would approach the Trump tariffs, though his advisers have said he will at least review them.
President Biden and Congress should concentrate on areas of common ground, finding incremental places to improve the tax code. A bipartisan bill recently introduced to help retirement savings is a good model for what incremental reform may look like.