The price tag of the Inflation Reduction Act’s green energy tax credits is much higher than originally thought. Among other things, the updated analysis indicates the Inflation Reduction Act does not reduce deficits after all.
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.
While the book minimum tax is smaller in scale than the proposed original corporate rate increases, it would introduce more complexity, inefficiency, and problems at the industry- and sector-levels that a corporate rate increase would not. Neither option is an optimal way to raise new tax revenues.
The Build Back Better Act would raise taxes to pay for social spending programs. But the design of some of the tax increases may end up hurting private pensions, among other problems.
Congress is debating new ways to raise revenue that would make the tax code more complex and more difficult to administer. The new proposals—imposing an alternative minimum tax on corporate book income, applying an excise tax on stock buybacks, and, at one point this week, a tax on unrealized capital gains for billionaires—are unreliable and highly complex ways to raise revenue.
Raising taxes on stock-based compensation through a book income tax will disadvantage this form of compensation and produce more complexity in the tax system without providing benefits to workers.
The corporate tax base should be reformed directly, rather than piecemeal through a complicated and burdensome separate tax applicable to a small number of companies.