Biden’s Tax Plan Will Destroy American Jobs
- Oops!Something went wrong.Please try again later.
Joe Biden’s recently proposed “infrastructure plan” is a $2-trillion-dollar liberal wish list designed to transform America. The lion’s share of the bill has nothing to do with infrastructure at all, but its most damaging provision is the business-tax increases that will destroy American jobs and slow the economic recovery the U.S. desperately needs following the COVID-19 pandemic.
There are a lot of bad changes in the ironically named “American Jobs Plan.” But two stand out as particularly damaging to the U.S. economy. The plan would increase the corporate-tax rate to 28 percent, which would be the highest in the world, and it would increase the global minimum tax on American companies’ foreign earnings. Together, these changes would tank America’s ability to compete with other nations, increase the probability of companies’ shifting jobs overseas, and destroy incentives for businesses to make the job-growing and wage-growing investments that strengthen the economy.
Increasing corporate taxes by 7 percentage points would kneecap the United States’ ability to compete with its biggest rivals. Including state taxes, America would have a 32.34 percent statutory corporate-tax rate. This would be the highest in the Organization for Economic Cooperation and Development (OECD). The U.S. corporate-tax rate would be greater even than Communist China’s. Under this plan, companies would undoubtedly choose to invest overseas instead of being burdened with Biden’s sky-high taxes, and American workers would lose.
The corporate tax has been found to be the most economically harmful tax in a study by the OECD because of its impact on wages and jobs. High corporate taxes reduce investment, which ultimately slows the economy by reducing productivity, job, and wage growth. The Tax Foundation estimates that this corporate-tax increase alone would lead to 159,000 fewer jobs. Higher taxes are the last thing America needs if we hope to make a full economic recovery after the COVID recession.
While 28 percent may not seem like a whole lot, corporate profits are also taxed at the state level, and then once more when profits are distributed as dividends to shareholders. If Biden’s plan is implemented, the total tax rate on corporate profits will end up being closer to 45.9 percent, and if Biden follows through on his campaign promise to tax dividends at ordinary income levels (39.6 percent under his plan), the total tax on corporate profits will rise to 59.1 percent.
Biden’s tax plan would also further widen the gap between corporations and their pass-through competitors. It is important for policy-makers to remember that 95 percent of businesses are organized as pass-through entities, meaning that their owners pay no corporate taxes, instead electing to file business income on their individual income-tax forms. These businesses would pay “only” a 39.6 percent tax rate under the Biden plan, while their corporate competitors would have their profits taxed as much as 60 percent.
This huge tax-rate disparity would prompt many corporations to go through costly reorganizing processes to take advantage of the preferential pass-through tax treatment. Investors would also choose to invest in pass-through businesses over C-corporations just because of this tax treatment. Both of these reforms would distort the economy as decisions will be made because of tax purposes instead of people making the economically productive decision.
Finally, Biden’s changes to the international tax code, increasing the tax on a company’s Global Intangible Low Tax Income (GILTI) to 21 percent, would encourage large American multinational corporations to shift their headquarters overseas. Currently, multinational corporations pay a minimum tax rate of 10.5 percent on their GILTI liability, which is designed to target a company’s high-return international income on intangible assets like intellectual property. GILTI was devised to reduce the incentive for companies to shift their highly mobile intellectual property overseas. The policy so far has been a resounding success, dramatically reducing tax avoidance and so-called corporate inversions.
However, almost doubling the taxes on a company’s international income would have the opposite effect. Under current law, the GILTI rate is low enough that large multinationals don’t have a significant incentive to try and escape the tax burden. But Biden’s plan to raise the minimum tax would probably incentivize multinational corporations to find ways to escape the tax, and the easiest way to do that would be to move their headquarters to a different country. Prior to GILTI, the U.S. was a world leader in corporate inversions. Biden’s tax plan would sadly return the United States to those days.
On the campaign trail, Biden promised to “build back better,” but this tax plan is really just one big blunder. It will make the United States less economically competitive internationally while suppressing wages and killing jobs domestically.
