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Biden’s Corporate Tax Hike: Populism Versus Economic Literacy

Posted on Monday, March 18, 2024
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by Outside Contributor
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In the latest volley of policy proposals that seem more rooted in populist rhetoric than economic knowledge, President Joe Biden’s budget plan to hike the corporate income tax rate from 21% to 28% strikes me as particularly misguided. This move, ostensibly aimed at ensuring a “fair share” of contributions from corporate America, is a glaring testament to a simplistic and all-too-common type of economic thinking that already hamstrings our nation’s competitiveness, stifles innovation, and ultimately penalizes the average American worker and consumer.

Beyond the president’s class warfare rhetoric, the lure of putting his hands on more revenue is one of the factors behind the proposal. Biden likes to pretend he is some sort of deficit cutter, but his administration is the mother of all big spenders. He’s seeking $7.3 trillion for next year without acknowledging the insolvency of Social Security coming our way or addressing what happens when Congress makes the Republican tax cut permanent in 2025 for people earning less than $400,000 a year.

Unfortunately, no fiscally irresponsible budget is complete without soothing individual taxpayers by promising to tax corporations. Never mind that the burden of corporate income tax hikes isn’t shouldered by corporations. Yes, corporations do write the checks to the Internal Revenue Service, but the economic weight will be partially or fully shifted to others, such as workers through lower wages, consumers through higher prices, or shareholders through lower returns on investment. That means that many taxpayers making less than that $400k will be shouldering the cost of the corporate tax hike.

It is worth expanding on the fact that much of a corporate tax increase will be shouldered specifically by workers. A recent Tax Foundation article, for instance, explained that “a study of corporate taxes in Germany found that workers bear about half of the tax burden in the form of lower wages, with low-skilled, young, and female employees disproportionately harmed.”

Biden’s planned tax hike would raise revenue for sure. Kyle Pomerleau at the American Enterprise Institute told me that it would raise roughly $1 trillion over a decade. However, it will do it in the most damaging way possible.

Indeed, it is well-established by the economic literature that increasing corporate taxes is the most economically destructive method due to its impact on incentives to invest. Investments that were previously feasible at the lowest rate of capital are now out of reach. Firms forgo machinery, factories and other equipment, reducing their capital stock. That in turn reduces productivity, output and overtime wages.

The good news is that the reverse is also true. That’s what the Republicans did in 2017 when they cut the federal corporate tax rate from 35% to 21% while broadening the tax base. Chris Edwards at the Cato Institute recently noted that the move increased investments and wages as one would hope – and it also managed to boost federal corporate tax collections from $297 billion in 2017 to a projected $569 billion in 2024.

While this spike was attributed to temporary factors – the revenue is anticipated to decrease to $494 billion in 2025 – it also reduced tax avoidance from firms who repatriated much of the revenue they used to keep abroad. Instead of avoiding higher tax rates, they invested more in America and boosted wages along the way.

In addition, for all the concerns about fairness expressed by the administration to justify its tax hike, the corporate tax is quite unfair. Profits are already subject to taxation at the individual level when distributed as dividends or realized as capital gains. Increasing the corporate tax rate will exacerbate the issue of double taxation, distorting investment decisions and reducing economic efficiency, not to mention encouraging aggressive planning for more tax avoidance.

Last, the administration’s plan ignores one of its usual priorities: the fact that many U.S. companies must compete on the international stage. Raising the corporate income tax at home makes them less competitive abroad. According to the Cato Institute’s Adam Michel, if Biden is successful in raising the corporate income tax to 28%, the U.S. would have the second-highest such rate among the market-oriented democracies that make up the OECD. America would instantly become less attractive for multinational corporations and mobile capital.

In an era where economic literacy should guide policymaking, reverting to such tax hikes is a step backward – a misstep we can ill afford amid the delicate dance of post-pandemic recovery and an increasingly competitive global economy.

Veronique de Rugy is the George Gibbs Chair in Political Economy and a senior research fellow at the Mercatus Center at George Mason University. 

Reprinted with Permission from CFIF.org – By Veronique de Rugy

The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.

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WJS
WJS
1 month ago

We, well I hope a lot of us know that raising the corporate tax rate makes us less competitive, reduces economic growth, minimizes raises, enhancing productivity, reduces profitability, and stimulate layoffs such is the democratic thinking.

Jerry
Jerry
1 month ago

Corporations do not pay taxes. They will raise their prices to cover extra tax costs, lay people off or both.

Theresa Coughlin
Theresa Coughlin
1 month ago

The democrats will never learn the simple lesson that when you tax something you get less of it. They will not be happy unless and until there is no private investment in the economy and then what will they do?

Gil
Gil
1 month ago

All democratic politicians to this and we seem to survive but what worries me is the national debt and Biden doesn’t plan on reducing the debt with this extra money, he will just have a spending spree. What ticks me off is that Social Security is always the target and not welfare which is out of control. Everyone should pay their “fair share” of taxes but to give our hard earned money away to anyone coming across the border, is insane. Most democrats are lawyers and they know nothing about economics. The fact is that the more money you allow someone to keep, the more they spend which helps the small and large businesses (which pay sales tax) to grow and open new locations. All this prosperity requires new jobs opening up and putting ore money in other people’s pockets…which they go out and spend. New employees hired during this prosperity and expansion also pay taxes and they buy things which bring in sales tax, etc. etc. ‘TRICKLE DOWN ECONOMICS” does work and you can see how the reverse happens when people are trying to make ends meet with their take-home pay reducing and inflation going up. People get laid and all that income tax and sales tax goes away. Welfare increases. How can they not see how easy and simple this is and do the math? Because they are morons. Trickle down economics works.

Nick
Nick
1 month ago

Everything the Biden Administration has done is wrong. We have the second highest corporate tax rate in the world. If you want less of something you tax it. If you want more you subsidize it. Obviously the by demonstration wants Less business. They are anti-capitalist. The people will speak this November if we can stop them from cheating. That’s what they open borders was all about. Count all the illegal immigrants and shift the number of Representatives, then allow all illegals to vote. He would see them Vinny’s overnight if the Democrats were convinced that illegal immigrants are going to vote Republican

paul
paul
1 month ago

here is what happens when you raise taxes you get less money and less economic growth more costs to consumers biden never had job over 50 yrs in gov knows nothing typical gov employee

Thinking
Thinking
1 month ago

All this is to bankrupt America. Banks are now offering help with personal spending. The commercial on tv for one of these banks shows if the person can afford a new couch that his dog tore to pieces. Goodness sake can’t a person decide that for themselves? Keep an account of your own spending. Alas the pandemic forced us away from cash and now the banks keep track of our credit and debit card spending. All this for the day the banks will handle your money. And tell you when and where you have to spend your money. It is all part of a plan. Ole Joe wants to borrow 16 trillion dollar over the next 10 years and says it won’t hurt our economy at all. I am not an economist but even I can figure out that when I am 31 trillion in debt and borrowing 16 trillion more and I will not be in any trouble a fairy tale is. This raising of the tax rate for businesses is going to be the death knell for America and its citizens. Businesses wil outsource the jobs, no incentive to expand or improve equipment. China will become richer. America poorer. If he really was interested in getting more taxes from businesses, rewrite the tax code. 21% straight tax on their income and for everyone else one flat rate to 100K. After that step up rates. But he wants to show he is going after the 1%. Well he falls under that. Did he pay his fair amount on the bribe money from China, Ukraine and Moscow. Show your tax papers please since 2016. Just curious if the Fox watching the henhouse is honest himself.

NIcholas Elder
NIcholas Elder
1 month ago

Having been a small business owner, 42% of our sales were international. When Obama chose to raise the corporate income tax, we had to raise our selling prices, making our products less competitive internationally. As most politicians have never worked in a non government or for profit concern, their ignorance and lack of business acumen is truly embarrassing and explains why the US has such a stifling debt.

Tim Toroian
Tim Toroian
1 month ago

Since the GDP is around 26 trillion, I wonder where he thinks 5 trillion in new taxes will come from. And it is not to reduce debt. It is for new spending. PS: the stock rose 50=% under Trump and about 25% under numbnuts.

James Thompson
James Thompson
1 month ago

10% for the big guy

Elaine
Elaine
1 month ago

Corporations are supported by stockholders and most have retirement mutual funds to supplement their social income. To raise corporate taxes is to diminish the profits that pay the stockholders, therefore a raise in all taxes penalizes every investor. The answer is to regulate the exorbitant salaries of the corporate adminstration to be comparable with their labor force.
Just my thoughts.

TommyD
TommyD
1 month ago

It just doesn’t end. This is an attempt at a known failed policy. Businesses cut jobs, move away and the money that was initially generated is spent and now the government looks for another way to fill in the “need” of the money they never needed in the first place. When will people learn? When will some people stop voting along party lines? All Americans should be taught about taxes, government and the fact that the government is spending “our” money and that there is really no such thing as “free” anything. Someone is paying for everything that the government offers as “free.” Sure, there are some very important programs for people that are truly in need but the majority have become people that are simply too lazy to work or pet projects of certain politicians or money being given to people that aren’t even in the US legally. It’s mind boggling. We raised the drinking age back to 21, we really need to raise the voting age back to 21. The fact that people that are still in high school can actually vote makes no sense. Sure, if the person under 21 is serving in the military, then they should have a “voting exemption”, other than that, the voting age needs to be raised back to 21 years of age. All we are seeing liberals do is use the words “CHANGE” and “FREE” and the vast majority of younger people are voting for them. Stop the madness.

Pappy
Pappy
1 month ago

The aticle and previous comments are correct. I call this the age of “Judging the book by the cover”. Why? It seems that politicians only react to the name of a proposal or bill to make their decisions by. The fact is that the government should not be allowed to tax anything that would cause a business’s price to be altered. We know that the costs of being in business are passed on to the consumer. Maybe they need a little lesson in some basic economics: When government spending goes up, inflation goes up. What is extremely hard for our politicians to grasp is that Milton Freidman was correct in his teaching about the free market. Here is a fact for stupid Joe: If we moved the corporate tax to 0% it would create a tremendous growth in our economy. Why? because businesses would expand, order more product and raw material: which all would create a whole bunch of new jobs, and in the long run the government would collect more money than it does because there would be so many more tax payers. They could even lower individual tax rates and still collect more money. How many citizens would that make happy. It is simple economics in a free market. I guess this seems like a shocking suggestion to most because we have gotten so far away from the common sense of a true free market. One of the problems is that the distribution of funds control is what politicians really care about.
Okay, that is one fix. Here is another: Change terms for politicians. Make congressional terms longer and senatorial terms shorter…. say 5 years. And here is the key: ONLY ONE TERM allowed. Why? Politicians make decisions that help them get re-elected, but their job is to do what is right for the country. I know, my Republican friends won’t like this because they are worried about how seniority gets things for their states. But if we went to single terms, everyone is on a level playing field. OMG, get the politics out of it?
A third thing: Government should never, ever tax the income of an individual. That reeks of governmental oppression. Just check the total income numbers that the government takes in now. Compare that to products sales. See the percentage that the tax is to product sales. There is a baseline for a federal sales tax. I would bet 3% would yield a surprising number. So, what should we do? Make it 10% Spend all over the 3% to bring down the national debt. Then, once that is done lower until we get to 3% again. Make it a Constitutional amendment that the tax can never go over 10% ever….
This is not rocket science…. just real free market at work like it should be..

Gil
Gil
1 month ago

oops, I meant to say “laid off”…..

marty
marty
1 month ago

Dementia Joe is a TAX and SPEND Democrat. This is ALL they know, No Econ 101 because they are weasel lawyers instead of businessmen. Trump cut Corporate taxes so the USA could compete in world markets and it worked. Industries moved back here and expanded their workforce. The “Big Guy” must Think every body gets a 10 % cut ! Pelosi’s parting Budget had something for everybody but the taxpayers. Now we’re over $ 34 TRILLION in DEBT !! When O’Biden snuck in more taxes were coming in , even after Covid, Joey started his give-aways , botched vaccine mandates, work from home, loan forgiveness, buying votes. We need our businessman back in the White House, vote TRUMP !!

Jim
Jim
1 month ago

Repeal the 16th Amendment. That will result in a large decrease in the size of the federal government and reduce their unConstitutional overreach in our daily lives.1913 was not a good year for hardworking American citizens.

DenvilleSr
DenvilleSr
1 month ago

My father told me when I was a kid that corporations “process” tax payments, but customers “pay” them in higher prices. He knew that even though he had dropped out of high school after the 10th grade. It seems like today a lot of people can’t figure that out.

Robert Zuccaro
Robert Zuccaro
1 month ago

Anytime costs go up for business, those costs are passed along to the consumer. That’s why your Snickers don’t have as many nuts, Joe, although you’re nuts enough for everyone.

John
John
1 month ago

How about we raise the corporate tax on foreign corporations ONLY?Who cares if they won’t build factories here. 90 % of the time we are literally paying these foreign corporations to build and invest here with tax breaks and taxpayer money.Stupid, stupid, stupid!!!It’s like giving 400 million dollars worth of tax breaks to Facebook to build a server farm in New Mexico and guaranteed by the local tax base.Use to be that corporations put there profits right back into the corporation and avoided taxes all together, while the corporation net worth increased.

inge schuster
inge schuster
1 month ago

Pensions depend on stock dividends. Increasing corporate taxes would result in fewer employers offering pensions to their workers.

carl
carl
14 days ago

500 former congressmen are now lobbyists in DC. I think its called K street.
I would like to see AMAC shine a light on who are these former congressman.
Who are they working for? and what are they lobbying for? and why?

cam
cam
29 days ago

When you have a commonsense and business magnet as President, the economy is enumerated by sound fiscal policies, sensible tax brackets, improving profitability yet not compromising productivities by sending manufacturing, and other jobs overseas, especially to our enemies like China, India, and other Asian markets. I do agree that the negative impact on salary reduction, higher prices, and layoffs are some of the adverse outcomes of senseless and stupid economic policies. We’re electing non-commonsense or financially or economically prudent men and women to Congress. Now, just jive talking divisive rhetorical nonsense, spewing divisive hateful venoms, and promising welfare benefits, encouraging laziness, bringing in those who are abusing the sovereignty preferred to as, “new comers’ and you will be elected to Congress. This is sickening!

MIKE TRACY
MIKE TRACY
30 days ago

As Thomas Sowell has often shown us, the Democrats never allow the facts to get in the way of buying more votes from the 50% who pay no income taxes.

carl
carl
30 days ago

bernie sanders budget

John
John
1 month ago

I think it is time the federal government gets rid of the income tax and implements a national sales tax. If corporations needed more revenue to reach their financial goals they would have to reduce prices in order to increase sales. The federal government would do away with IRS auditors against the American Public and haunt businesses to ensure they were sending the right amount of collected sales tax each month. The national sales tax would be collected at the point of sale just like the state sales taxes are. A final benefit to the current U. S. taxpayer is that they no longer have to worry about getting their federal tax withholding right and no federal income tax filing each year.

John
John
1 month ago

First, let me say that as a professional conservative economist, I would like to kill the federal income tax completely and establish a national sales tax (often called the “fair tax”) as the primary tax of the federal government. But, I do believe a “targeted” income tax is both relevant and necessary in the U. S. There are many companies that routinely average an astounding high percentage of profits against sales on a very consistent annual basis. Oil and many energy companies are among this list. Additionally, many of the software and internet/communications companies have significantly annual profit rates against sales. I contend that these corporations have bilked the U. S. customer through overpricing their products or services. Thus, I propose that corporations that have profit rates greater than 10% pay an excess profit tax for all profits that exceed 10% of their annual sales. During the 1980-1990 time frame, “windfall” or “excess” profit taxes were placed on oil companies. These excess profit taxes helped the federal government collect an estimated extra $80 billion dollars during that 10 year period. In 2022, the top 20 companies of the Fortune 500 had profit rates as a percentage of sales from 32.2% to 51.0%. The top 20 companies with the highest revenue per dollar of assets ranged from 3.1 to 7.2 times of revenue per dollar of assets in 2022. A revenue per dollar of asset that equals 1.0 should mean that the company could have completely rebuilt its entire facilities and production equipment with that single year’s profits. These are two measures that show there are many companies in the U. S. that are making huge profits above their annual financial needs to remain and flourish in their businesses. To me it is a sure indication that they are overcharging their customers for their products or services and that an excess profits tax using one or both of the measures shown here could and should be levied to help bring prices to the U. S. consumer down and keep them down. Or, if companies continue to keep their prices above reasonable measurers, the additional tax revenue would certainly help bring significantly more revenue to the federal government. But, having said all this, I believe that a national sales tax is best for the federal government because it is easily and immediately collected at the time of purchase, and we don’t need 100,000 IRS auditors looking over our shoulders before and after we file annual tax forms.

John B.

Soledad Cremin
Soledad Cremin
1 month ago

You’ve addressed some very important points, kudos for bringing them to light.

uncleferd
uncleferd
1 month ago

President Biden and his liberal Democrat kin just don’t feel like they’re “in the game” unless they’re continuing to impose economic hardship on hard-working Americans.
Forcing their will in a conspicuously destructive way just feels to darned good for them to want to stop.
I think it would be gratifying to see President Biden working in a prison road gang that forces him to wear high heels that are a size too small while he tries to bust rocks. I think many of us would find that visual to be very uplifting.

Myrna
Myrna
1 month ago

Well stated common sense.

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