President Joe Biden’s $2 trillion infrastructure plan, unveiled Wednesday, contained a mix of the expected and unexpected. One of the expected elements: a huge corporate tax hike.
But don’t fret, the administration assures us. For right now, even the rich won’t be paying more. Instead, the tax increases are aimed at corporations, undoing much of former President Donald Trump’s 2017 tax breaks.
As The Washington Post reported Tuesday, the administration is looking to raise up to $3 trillion in tax revenue over the next decade, “primarily on wealthy investors, rich people and businesses.”
The taxes, The Post noted, “have already come under heavy criticism from congressional Republicans, who say such hikes will damage U.S. competitiveness and drain the nation of vital economic activity as it struggles to rebound from the pandemic.”
“Biden’s tax plan is expected to raise the corporate tax rate from 21 percent to 28 percent, end federal subsidies for fossil fuel companies and increase the global minimum tax paid from about 13 percent to 21 percent, as well as other measures aimed at taxing corporations that shelter profits offshore to avoid taxes,” it said.
You hardly have to guess how this was reported. “Biden Tax Plan Challenges G.O.P. Formula for Economic Growth,” The New York Times’ headline read. Subheadline: “The president sees public spending, rather than relying on businesses to turn tax cuts into investment, as the key to competitiveness.”
Yes, we all know the narrative: Corporations haven’t been paying their fair share. Witness the constant freakouts over Amazon and the fact it “didn’t pay taxes,” almost always from someone who doesn’t understand the basics of corporate taxes and isn’t going to Google it to learn. Not that I particularly like defending the corporate behemoth that single-handedly took down an entire conservative-leaning social media network and created enough wealth for Jeff Bezos to buy The Washington Post, but facts are facts.
The problem is that America’s corporate tax rate isn’t particularly low — and it’s about to be a lot higher than our closest competitor’s.
At a quick glance, China’s corporate taxes are slightly higher than America’s will be if the plan passes. China is at 25 percent, and America would go from 21 percent to 28 percent.
In truth, it’s a bit more complex than that.
For one, that 28 percent won’t really be 28 percent. In the United States, there are also state and local taxes to pay. As Joseph W. Sullivan, former member of the White House Council of Economic Advisers during the Trump administration, noted in a Jan. 5 piece in National Review, this isn’t factoring in state and local taxes.
If you do that, America already has a 27 percent average corporate tax rate — higher than China’s. With Biden’s tax hike, that would make it 34 percent, tied with France for highest in the G-7 and much higher than China’s.
But wait. It gets worse.
While China’s corporate tax rate is 25 percent for most businesses, as Price Waterhouse Cooper notes, there’s also a 15 percent tax for “[q]ualfied new/high tech enterprises.” In other words, in the most competitive field of this new century, high-tech firms in China could have a tax rate that’s not even half what American tech firms pay.
And yet, according to Biden, this is the plan that will make us competitive with our biggest global rival, showering jobs upon the American people.
“It’s not a plan that tinkers around the edges. It’s a once-in-a-generation investment in America, unlike anything we’ve seen or done since we built the interstate highway system and the space race decades ago,” Biden said during the unveiling ceremony Wednesday in Pennsylvania.
“In fact, it’s largest American jobs investment since World War II. It’ll create millions of jobs, good-paying jobs. It’ll grow the economy, make us more competitive around the world, promote our national security interest and put us in a position to win the global competition with China in the upcoming years.”
How, you may ask?
“It’s going to boost America’s innovative edge in markets where global leadership is up for grabs — markets like battery technology, biotechnology, computer chips, clean energy, the competition with China in particular,” Biden said.
Except it hurts tech firms in particular, given China’s lower tax rate for qualifying tech enterprises.
But why let facts get in the way? The message Wednesday was that taxes don’t hurt anyone just as long as you spend.
“I don’t think you’ll find a Republican today in the House or Senate, maybe I’m wrong, gentlemen, who doesn’t think we have to improve our infrastructure,” Biden said.
“They know China and other countries are eating our lunch. There’s no reason why it can’t be bipartisan again. The divisions of the moment shouldn’t stop us from doing the right thing for the future.”
Leave aside the fact this is interesting messaging — coming from the man who, in May 2019, used a nearly identical meal-based metaphor to mock then-President Trump’s hard stance on Beijing. (“China is going to eat our lunch? Come on, man … they can’t even figure out how to deal with the fact that they have this great division between the China Sea and the mountains in the east, I mean in the west,” Biden, with his usual rhetorical imprecision, told a campaign crowd, according to The Hill.)
This is how our new president is going to fight China: By spending money we raised in part through a corporate tax rate that makes American companies less competitive, we will become more competitive.
Biden closed by saying that his infrastructure plan, with its concomitant tax hikes, was “what competition between America and China and the rest of the world is all about.”
“It’s a basic question: Can democracies still deliver for their people?” Biden said.
Not this way, they can’t.
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