Biden on Wednesday unveiled the far-reaching $2 trillion plan that aims to shore up the nation’s highways, bridges and ports, as well as funding telecommunications upgrades and research and development to boost competitiveness, especially compared to China.
But a key source of the financing would come from a hike in the corporate tax rate to 28 percent from 21 percent.
Biden’s predecessor, Donald Trump in late 2017 signed into a law the measure that slashed the corporate rate from 35 percent, although with various deductions and loopholes, the average rate companies actually pay was and remains much lower.
The Trump tax cut has resulted in significant savings for America’s companies, which pay an average tax rate of 8 percent compared with 16 percent prior to the 2017, according to a recent analysis by the Joint Committee on Taxation.
Even if Congress approves Biden’s proposed increase, a corporate tax rate of 28 percent still would be the lowest since World War II, with the exception of the past three years.
First enacted in 1909 in the United States, the corporate tax rate got as high as 52.8 percent in 1968 before a series of cuts in the 1970s and 1980s.
Among members the OECD, the United States has a relatively high official tax rate after France and Columbia at 32 percent, and Australia, Mexico and Portugal at 30 percent.
But the average US rate after deductions trails far behind many advanced economies, according to OECD data.
Biden said his plan was not about “retribution” against the wealthy and successful, but “builds a fairer economy that gives everybody a chance to succeed.”
He said the eight-year investment plan would create “historic job growth.”
– Good trade-off? –
Business groups have sent early signs of their opposition to the Biden plan.
“We believe the proposal is dangerously misguided when it comes to how to pay for infrastructure,” the powerful Chamber of Commerce said in a statement.
And the Business Roundtable said it “strongly opposes” a generic corporate tax increase.
However, the group noted it has “has long supported user fee models, which includes business paying its share, to provide sustainable support for infrastructure investment.”
Transportation Secretary Pete Buttigieg floated a fee-based measure, but later backtracked.
The Biden plan also aims to crack down on tax havens used by multinationals and raise the global minimum tax to boost revenue collection, according to a White House handout.
Other changes include the elimination of subsidies for fossil fuel development and stiffening tax enforcement on large companies.
The White House estimates the changes would raise more than $2 trillion over the next 15 years and pay for the infrastructure plan.
Dean Baker, economist at the Center for Economic and Policy Research, said Biden’s proposal “is not a big jump into the unknown,” but is merely a compromise between the current rate and the level before Trump took office.
Baker noted proponents of the Trump tax cuts said lowering rates would curtail the use of tax havens and boost capital investment; but neither of those things have happened in a meaningful way.
Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a progressive think tank, defended the proposed tax hike as a practical way to finance the investment.
“Multinational corporations and their shareholders will benefit from improving infrastructure that have been harmed by decay,” Marr said.
“Calling for a partial reasonable reversal of Trump tax cuts to pay for rebuilding our nation’s infrastructure is a very good trade for our economy.”
Thornton Matheson, senior fellow the Urban Institute, said a seven point jump in the tax rate “could have a significant impact” on foreign investment in the US, but as a “big dynamic economy, we can sustain an above-average tax rate more easily than a small open economy.”
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