President Biden’s plan to increase the corporate tax rate would weaken economic recovery and hurt competitiveness, according to a report from the Tax Foundation.
Throughout the 2020 presidential campaign, Biden said that he planned to increase the corporate tax rate to 28%, a sharp rise from the current 21% set by former President Donald Trump’s Tax Cuts and Jobs Act but still well below the pre-2017 corporate rate of 35%.
The report found that the increase would bring the United States’s federal-state combined tax rate to roughly 32% — the highest statutory tax rate in the Organization for Economic Cooperation and Development. Such a tax hike would “increase the cost of investment in America” and “reduce long-run economic output by 0.8 percent, eliminate 159,000 jobs, and reduce wages by 0.7 percent.”
William McBride, vice president of federal tax and economy at the Tax Foundation, told the Washington Examiner that most of those effects would be felt within 10 years of implementation. But while the projections address the long-term effects of new tax policies, McBride said the tax would acutely affect companies that were forced to lay off employees during the pandemic.
“As the economy returns to normal, the main challenge is to reemploy those that have been laid off, and as corporations would do much of that hiring, raising corporate taxes would increase costs for those businesses and slow the hiring process,” McBride said.
“Poorly considered changes to tax policy, including business tax increases, would hamper the economic recovery and limit prospects over the long term,” the report stated. “Understanding the potential effects of proposed changes to the corporate income tax, including the potential impacts on American workers, consumers, and the broader American economy, can help avoid costly mistakes.”