Biden Tax Plan Will Destroy US Competitiveness

the staff of the Ridgewood blog

Washington DC, according to the Tax Foundation if the Biden tax plan is fully implemented,  increasing the corporate income tax would undermine the progress policymakers made four years ago. 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, giving the U.S. the highest combined corporate income tax rate in the OECD, ahead of France at 32.02 percent and the U.S. rank on the Tax Foundation’s International Tax Competitiveness Index would fall from 21st in 2020 to 30th, with the corporate rank falling from 19th to 33rd overall.

Worse yet , the Biden plan will continue to hasten the demise of high tax states like New Jersey forcing more out migration to lower tax states.

President Joe Biden and congressional policymakers have proposed several changes to the corporate income tax, including raising the rate from 21 percent to 28 percent and imposing a 15 percent minimum tax on the book income of large corporations. The proposals are being considered to raise revenue for new spending programs and would repeal changes to the corporate tax made by the Tax Cuts and Jobs Act (TCJA) in late 2017. The TCJA brought the U.S. statutory corporate tax rate down from a federal-state combined rate of 38.9 percent in 2017—then the highest in the OECD—to 25.8 percent in 2020, slightly above the current OECD average (excluding the U.S.) of 23.4 percent

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, highest in the OECD and among Group of Seven (G7) countries, harming U.S. economic competitiveness and increasing the cost of investment in America. We estimate that this would reduce long-run economic output by 0.8 percent, eliminate 159,000 jobs, and reduce wages by 0.7 percent. Workers across the income scale would bear much of the tax increase. For example, the bottom 20 percent of earners would on average see a 1.45 percent drop in after-tax income in the long run.

A minimum tax on the book income of large corporations would target gaps between financial and taxable income that generally exist because the rules for taxation differ from standards for reporting income to shareholders. Such a minimum tax would likely introduce additional complexity and distortions into the tax code and generate relatively little tax revenue, in part because firms have a degree of flexibility in reporting book income. The tax would potentially undermine current-law investment incentives as well as those proposed by President Biden, such as the “Made in America” tax credit.