Corporate America and some economic experts are increasingly warning about the potential consequences of raising corporate tax rates as businesses big and small struggle to dig out of the financial hole created by the pandemic.
Business advocacy groups have lined up to oppose President Joe Biden’s proposal to hike the corporate tax rate from 21% to 28% to pay for the spending plan, which includes money for infrastructure and other programs.
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This week, the Biden administration also proposed pursuing a “global minimum tax,” which would involve negotiating with other countries to agree on a minimum tax rate for multinational corporations — the White House wants to set that at 21% — in order to discourage companies from seeking to avoid a higher U.S. corporate tax rate by moving to a country with a lower one.
Ryan Young, senior fellow at the Competitive Enterprise Institute, said most corporations don’t end up paying their corporate taxes in the way most people might think.
“Consumers pay for it in higher prices,” Young told the Washington Examiner. “The company’s employees pay for it in the form of lower paychecks.”
GOP groups plan to feature the downstream effects of the corporate tax hike in a messaging campaign against the infrastructure package, which they will use to pressure vulnerable House Democrats over their tax positions.
And business interest groups have already started railing against the infrastructure pay-for.
The Chamber of Commerce said it supports the prospect of the Biden administration investing significantly in infrastructure, but not the tax increase.
“We strongly oppose the general tax increases proposed by the administration which will slow the economic recovery and make the United States less competitive globally — the exact opposite of the goals of the infrastructure plan,” the group said in a statement.
Joshua Bolten, the president and CEO of Business Roundtable, said in a statement that Congress should avoid “creating new barriers to job creation and economic growth, particularly during the recovery,” by raising corporate taxes.
The Biden administration has floated the global minimum tax rate, meanwhile, as a way to counter the effects of a higher corporate rate on companies that might want to seek relief in lower-tax countries. Treasury Secretary Janet Yellen said Monday that the administration would work with G-20 countries to decide on a unified rate that could end what she described as a “race to the bottom” of countries lowering their rates to attract businesses away from each other.
Young said that even if Yellen successfully persuaded all members of the G-20 to agree to a higher rate, which is far from guaranteed, as some countries benefit from broadening their corporate tax base by enticing companies with their low rate, there are more than 200 countries in the world, and only 20 would observe the global minimum rate. Corporations seeking to escape the 28% rate that Biden wants to impose could simply look outside the G-20 for a new home, Young said.
Daniel Bunn, vice president of global projects at the Tax Foundation, said there is some risk that corporations will want to move some of their profits outside the U.S. if they face losses at home due to a policy change. He said the proposal of a global minimum task is an acknowledgment from Biden administration officials that their rate hike involves such risks.
“To me, that says the U.S. is essentially telling other countries what they want their policies to be so that the U.S. doesn’t have to have pro-growth business taxes,” Bunn told the Washington Examiner.
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Bunn also said raising corporate tax rates broadly could slow economic recovery around the world at a time when all countries are struggling to bounce back from the effects of the pandemic.
“A high minimum tax like 21% would put a lot of sand in the gears in the global market, and, especially at a time when we’re trying to recover from this pandemic, I think that’s a real risk.”
