As much of the nation weather’s (pardon the pun) Winter Storm Uri, an announcement emerged from the White House that President Joe Biden’s tax plan to increase revenue includes an increase for the corporate rate from 21% to 28%.
Some statistics on the change, per Alex Hendrie of RealClearPolitics:
The Biden tax hike calls for raising the corporate rate from 21% to 28%, proposes a new global minimum tax on American businesses, and creates a 15% tax on “book income.” These tax hikes would be devastating to American businesses and would see U.S. businesses pay a 32% rate after state taxes, one of the highest rates in the developed world.
For instance, the U.S. rate would be higher than key competitors such as the United Kingdom (19%), China (25%), Canada (26.5%), Ireland (12.5%), Germany (29.9%) and Japan (29.74%), according to data compiled by the Organisation for Economic Co-operation and Development (OECD).
It would also impose new taxes on American businesses at a time the U.S. is lagging behind foreign competitors when it comes to promoting innovation. In fact, according to a Manufacturing Leadership Council study, the U.S. ranks 26th in research and development tax incentives when ranking the 36 developed countries in the OECD.
Not only will these tax increases result in businesses creating jobs overseas instead of America, they will also cause a return of corporate inversions.
Inversions came to prominence during the Obama administration, when concern grew that the uncompetitive tax code was causing U.S. business to merge with, or acquire, a foreign business with the intent of incorporating the new, combined entity overseas. In 2014 alone, American businesses with combined assets of $319 billion announced plans to invert, according to the Congressional Budget Office.
The Tax Cuts and Jobs Act (TCJA) signed into law in 2017 solved this problem and caused businesses to begin coming back to America. This is not the only problem solved by the TCJA that will return if Biden’s tax hikes are signed into law – the U.S. will also see a surge of foreign businesses acquiring American businesses.
The TCJA changed much of the tax code to reduce individual and corporate tax rates. The idea was to provide more ‘grease’ so=to-speak for the economic wheels, by providing lower expenditures so increase job creation and incentivize companies to repatriate dollars.
This seemed to work, at least for a time, as GDP continued to grow. It is worth mentioning, however, that this doesn’t mean wealth gaps or a ‘rebuilding of the middle class’ occurred, just that the overall, national economy appeared to be moving with more rapidity.
The COVID hit, and put the economy in a free-fall. Compared to most countries, the United States was unable to provide the same level of stimulus and sustainability as other places in the world.
Why? Because we were broke.
Why were we broke? Because the country continued to spend well above its means and borrow up to the debt limit, ‘hoping’ that the economy would eventually outrun the debt.
Of course, it never did.
As discussed last week, if taxes are to increase perhaps we should find a better method for managing finances at a federal level first? Why not divert some of this unnecessary spending on defense toward local infrastructure projects that create jobs? Or even disaster mitigation, which technically falls under the definition of ‘defense’ for this country?
Defense isn’t the only budget that is over what would be considered ‘responsible’ spending, but it’s the most glaring number.
Investing in America to create jobs and push recovery from COVID-19 should be the goal of any administration at present, not messing with the tax code. The constant pendulum swinging from one economic mantra to the other causes nothing but problems with no long term consistency.
Finding a better way to manage and spend tax revenues will provide more faith to the American people. If the federal government was operating at even 80% efficiency, citizenry would be more likely to agree to a tax hike.
But until that happens, it’s time for government to spend more wisely, taking bites out of the debt and investing in local projects that will simulate the economy, protect infrastructure, and create jobs.
McHugh David is publisher of the Livingston Parish News.