President Biden’s renewed drive to increase taxes on corporations would dampen economic activity and lead to a surge in unemployment, business advocacy organizations warn.
In his State of the Union speech March 7, Biden argued for increases in the statutory corporate tax rate from 21 percent to 28 percent and in the corporate alternative minimum tax from 15 percent to 21 percent. He has also called for corporations to be denied the ability to write off compensation they provide to any employee earning over $1 million.
The proposals are new additions to a tax agenda that appears similar to the one Biden unveiled in March 2023, which included a minimum tax on billionaires and a quadrupling of the stock buyback excise tax.
While the increased scrutiny on large corporations and wealthy individuals is a key component of Biden’s tax vision of “rewarding work, not wealth,” some prominent business groups worry that the administration may be going a step too far.
“Economic research shows that raising the federal corporate tax rate is the most economically damaging tax increase, leading to significant reductions in employment and incomes. President Biden’s proposed 28 percent tax rate would raise the combined U.S. federal-state tax rate up to 32.8 percent — higher than the average rate of G20 nations, much higher than the average rate in the EU, and significantly higher than China,” the RATE Coalition — a nonprofit focusing on business tax reform that includes AT&T, Walmart, and Disney as members — said in a statement. “The result would be a devastating and unnecessary blow to American businesses, workers, and families.”
According to the Tax Foundation, Europe has an average corporate tax rate of 21.3 percent, while China has an average rate of 25 percent.
Neil Bradley of the U.S. Chamber of Commerce said he believes increasing the corporate tax rate would undo much of the economic progress the Biden administration has been able to achieve over the last few months.
“It is disappointing that rather than celebrating the millions of jobs created by private businesses this past year and the record number of new business starts, it appears that the State of the Union message will instead focus on raising taxes and more government price controls. Those policies would actually result in lower economic growth, fewer new business starts, less job creation, and fewer choices for American families,” Bradley told Tax Notes.
The Tax Cuts and Jobs Act lowered the statutory corporate tax rate from 35 percent to 21 percent and was credited with sparking a modest boost in economic activity. However, the law has also been criticized for playing a role in ballooning the deficit.
“I appreciate that Biden’s plan focuses on increasing revenue, because that’s what we need,” Marc Goldwein of the Committee for a Responsible Federal Budget told Tax Notes.
Goldwein noted that the proposed change on deductions for corporations paying high earners isn’t a new concept. “We were already on our way toward that goal with what was included in the TCJA,” he said. As part of that legislation, deductions were capped for executives earning over $1 million, while Biden’s proposal expands it to any employee who does so. White House officials told reporters March 6 that they expect the measure to generate about $270 billion over 10 years.
Goldwein also downplayed fears of a substantial increase in the corporate tax rate.
“Much of what Biden is proposing is similar to what he proposed last year. The numbers are unrealistic, but that’s not the point. What it does is lay down a marker for discussions to take place,” Goldwein said.
Kyle Pomerleau of the American Enterprise Institute said that instead of adding clarity for businesses, Biden is adding further complexity to the tax code.
“Under the Biden administration, we now have three overlapping regimes when it comes to corporate taxation: a 28 percent statutory minimum tax; a 21 percent corporate alternative minimum tax; and a 15 percent global alternative minimum tax as part of pillar 2” of the OECD global framework, Pomerleau said. “It’s definitely not moving in the direction of greater tax simplification.”
Pomerleau also argued that Biden’s pledge to extend many of the tax incentives in the TCJA only to those earning $400,000 or less would do little to reduce the deficit.
“Extending the TCJA for those earning $400,000 or less accounts for about 75 percent of the total cost of law. So if the entire bill costs $3 trillion to extend over 10 years, Biden wants to spend $2.25 trillion,” Pomerleau said.
Supporters of Biden’s policies insist his administration is responding to inherent inequities in the tax code and that they would be a political win.
“Most Americans believe the economy is unfair, and the tax system plays a huge role in that. His corporate tax proposals are an example of the president’s vision of creating an economy that grows from the bottom up and the middle out,” Brendan Duke of the Center for American Progress said. “If corporations want to come out against this, the White House will welcome that fight. It provides a great contrast to former President Trump.”
Duke predicted that rather than push back, corporations will work with the administration given the relative strength of the economy and the various incentives Biden has provided to businesses to invest in the United States.
“Biden can walk and chew gum. He can ask for a tax code that’s fair while working with those same companies to promote a competitive economy,” Duke said.