President Biden wants to raise the corporate tax rate from its current 21 percent to 28 percent.
The corporate tax rate was 35 percent before 2017, when the Tax Cuts and Jobs Act lowered them to the present level, a cut that was vociferously denounced on the left as a giveaway to the rich.
The rich likely did get richer, Billy Binion points out in Reason, but so did the poor.
Interestingly, Scandinavia’s social democrats realize that lower corporate taxes help all levels of society and consequently keep their corporate taxes low: Sweden’s corporate taxes are 20.6, while Norway and Denmark have a 22 percent corporate tax rate.
If President Biden gets his wish on that big corporate tax hike, it will be workers who will bear the brunt—and likely the most vulnerable workers, at that. Binion writes:
“High corporate taxes divert capital away from the U.S. corporate sector and toward noncorporate uses and other countries,” wrote Mihir A. Desai, the Mizuho Financial Group Professor of Finance at Harvard Business School, in a 2012 issue of the Harvard Business Review. “They therefore limit investments that would raise the productivity of American workers and would increase real wages. This is the cruel logic of a corporate tax in a global economy—that its burden falls most heavily on workers.”
A research paper from the nonpartisan American Economic Association found that workers shoulder approximately 50 percent of the corporate tax burden, with the bulk of that falling on “low-skilled, young, and female employees”—in other words, the most vulnerable groups. As it pertains to Biden’s hike specifically, experts estimate that between 66 to 100 percent of the strain will fall on workers.
On the campaign trail, Biden zeroed in on companies like Amazon for paying what he claimed was too little in taxes. Yet the U.S. tax code was specifically reformed over the years to incentivize investment, innovation, and growth, all things that directly impact workers’ well-being. The social democrats of Scandinavia understand how that works. Why doesn’t Biden?
The President’s promises about where the burden of our individual income taxes will fall across the citizenry are likewise misleading.
Although President Biden has repeatedly insisted that no American who makes under $400,000 a year will be affected by the new taxes, Binion states something we all intuitively know in a second article: this simply is not true. It is impossible to raise the revenue President Biden needs for his mindboggling level of spending, designed to restructure our entire economy, without burdening citizens who are not rich.
The $400,000 figure itself is open to interpretation. I am sure many of us think first of a Wall Streeter or corporate lawyer, who takes home this amount. But it is likely to include family businesses (such as farms, dairies or stores) that take in that much. Press Secretary Jen Psaki has not been unambivalent on this. And we all know what the answer will end up being anyway.
The 400K figure is not feasible, and we know it. Binion concludes:
It’s time for the Democrats who elect presidents that promise not to jack up taxes on anybody but the rich to come to terms with something: These politicians can’t continue to spend that much money without raising taxes on nearly everyone, and that includes some regressive taxes. I don’t like it, since I’d prefer the size and scope of government to be significantly smaller—but this reality is not optional.
Here’s another reason why Biden was never going to be able to keep his promise: He already announced his intention to increase the corporate income tax from the current 21 percent to 28 percent. The reality here is that the corporations that he says are going to send bigger checks to the Internal Revenue Service (IRS) after the tax hike aren’t the ones who actually shoulder this heavier tax burden.
The best explanation I’ve seen on this comes from a 2004 quote by economist Stephen Entin, who wrote, “The economic burden of a tax frequently does not rest with the person or business who has the statutory liability for paying the tax to the government.” That’s because taxes are ultimately only paid by people.
In this case, the burden of Biden’s corporate tax-rate hike will inevitably fall on corporations’ workers and shareholders (which includes almost everyone with a retirement plan), many of whom earn much less than $400,000 a year. Workers might not personally be sending more or bigger checks to the IRS, but they will still suffer higher taxation in the form of lower wages, as well as higher prices for consumer goods and services.
Economists aren’t sure how much of the hike will fall on workers. Estimates range from 66 percent to 100 percent of the tax falling on workers in the form of lower wages. The bottom line is that nobody can determine who truly bears the burden of a tax just by looking at where or on whom it is formally imposed, despite what the tax is called. But one thing is sure: Biden’s promise not to raise taxes on individuals making less than $400,000 is bunk.
The hubris of an older President in a hurry to remake the economy could have tragic consequences. To paraphrase SNL’s Sarah Palin skit, I can see Venezuela from my front porch.