Among a series of recent policy proposals that seem rooted more in populist rhetoric than in economic wisdom, President Joe Biden's budget proposal to increase the corporate tax rate from 21 percent to 28 percent is particularly misguided. It seems to me. This move, ostensibly aimed at securing a „fair share“ of contributions from American companies, is already hurting our nation's competitiveness, stifling innovation, and ultimately reducing average profits. It is clear evidence of a simple and all-too-common type of economic thinking that is working against us. American workers and consumers.
Beyond the president's class-war rhetoric, the temptation to obtain more revenue is one of the factors behind this proposal. Biden likes to portray himself as some kind of deficit reducer, but his administration is the mother of all big spenders. He refuses to acknowledge that Social Security is on the verge of collapse, nor does he address what will happen if Congress makes the Republican tax cuts for people making less than $400,000 permanent in 2025. They are asking for $7.3 trillion next year, without spending any more money.
Unfortunately, we cannot complete a fiscally irresponsible budget without appeasing individual taxpayers by promising to tax corporations. The burden of corporate tax increases is not borne by companies, so there is no need to worry about it. Sure, a company writes a check to his IRS, but the economic weight is partially or completely shifted to workers with lower wages, consumers with higher prices, shareholders with lower returns on investment, etc. It will be. That means many taxpayers with incomes below $400,000 will bear the cost of the corporate tax hike.
It is worth expanding on the fact that much of the corporate tax increase will be borne by workers in particular.recent tax foundation articleFor example, „Research on corporate tax in Germany shows that workers bear about half of the tax burden in the form of low wages, with lower-skilled, younger, and female employees disproportionately disadvantaged.'' It became clear,” he explained.
Biden's planned tax hikes will certainly raise revenue. Kyle Pomerleau of the American Enterprise Institute told me it would raise about $1 trillion over 10 years. However, it does so in the most harmful way possible.
In fact, it is well established in the economic literature that raising corporate taxes is the most economically destructive way to do so because it affects investment appetite. Investments that were previously viable at minimum capital rates are now unaffordable. Businesses abandon machinery, plants, and other equipment, reducing their capital stock. As a result, productivity, output, and overtime pay decrease.
The good news is that the opposite is also true. That's what Republicans did in 2017 when they lowered the federal corporate tax rate from 35% to 21% while expanding the tax base.Chris Edwards recently attended the Cato Institute I got it. The measure has led to expected increases in investment and wages, and has helped increase federal corporate tax collections from $297 billion in 2017 to a projected $569 billion in 2024.
This surge is due to temporary factors, with revenue expected to decline to $494 billion in 2025, but it also comes at the same time as a reduction in taxes from companies that were repatriating much of the revenue they previously kept overseas. Evasion has also been reduced. Instead of avoiding tax hikes, they increased investment in the United States and raised wages in the process.
Moreover, despite the fairness concerns expressed by the administration to justify tax increases, corporate taxes are deeply unfair. Profits are already subject to tax at the individual level when distributed as dividends or realized as capital gains. Raising corporate tax rates would exacerbate the problem of double taxation, distort investment decisions, and reduce economic efficiency, not to mention encourage more aggressive schemes for tax avoidance.
Finally, the administration's plan ignores one of its usual priorities: the fact that many American companies must compete on the international stage. Raising domestic corporate taxes will reduce competitiveness overseas.According to Adam Michel of the Cato Institute, if Mr. Biden succeeds in raising corporate taxes to 28%, the US will second highest This proportion is high among the market-oriented democracies that make up the Organization for Economic Co-operation and Development. America will quickly become less attractive to multinational corporations and mobile capital.
At a time when economic literacy should guide policy decisions, reverting to such tax increases is a setback and one that we cannot tolerate in the delicate dynamics of a post-pandemic recovery and increasingly competitive global economy. This is an impossible mistake.
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