corporate income tax, with 70% or higher the most likely outcome.” In short, this means that higher corporate tax rates correspond with a reduction in compensation for workers . Indeed, the Tax Foundation modeled President Biden’s proposal to boost the corporate rate from its current 21% to 28% and found it would eliminate 159,000 jobs and reduce wages by 0.7% for workers, on average. Even worse, those workers who can least afford to be negatively impacted – those in the bottom quartile of income – would see a 1.45% reduction in after-tax income in the long run due to a 28% rate. That’s bad news for working-class Americans. In addition to a higher statutory rate, Biden’s infrastructure plan proposes imposing a corporate minimum tax, which is intended to ensure that no corporation can evade taxes by exploiting loopholes in the tax code. While the intention may have merit, the impact of such a tax on “book income” would be problematic because this measure of income does not account for legitimate expenses such as capital investments. Under a minimum tax scenario, a corporation would effectively be penalized with higher taxes for making investments in machinery and equipment that can enhance productivity and competitiveness. As Nicole Kaeding, formerly of National Taxpayers Union Foundation, explained: Taxable income and book income vary for good reason. Taxable income allows companies to deduct their capital investments and carry forward their previous losses to better align their taxable profits with their economic profits.
Even worse, those workers who can least afford to be negatively impacted – those in the bottom quartile of income – would see a 1.45% reduction in after-tax income in the long run due to a 28% rate. That’s bad news for working-class Americans. Taxable income isn’t perfect – expensing, for example, should be made permanent and expanded to all assets – but it serves as a better tax base than book income. Unfortunately, Biden’s proposal to raise taxes on corporations by $2 trillion is only the tip of the iceberg... Democrats on Capitol Hill are emboldened by their majority status in both the Senate and House of Representatives and are aggressively looking to enact tax policies that would, in their estimation, reduce income inequality – though the economic merits of these ideas may be lacking. In particular, the progressive wing of the Democratic Party – led by liberal stalwarts like Senator Bernie Sanders (I-VT) and Senator Elizabeth Warren (D-MA) – have amplified their attacks on corporations and the wealthiest Americans. For instance, Senator Warren’s “Ultra-Millionaire Tax” has garnered significant attention in the media and on Capitol Hill. Her legislation would apply a tax on the net wealth of anyone with $50 million in assets. Her tax starts at two cents per dollar of wealth, but can escalate to 6% if certain conditions are met. She often
American Consequences
35 American Co s quences 35
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