Biden Capital Gains Tax Hike and Corporate Tax Hike Would Leave U.S. Uncompetitive with China

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Posted by Isabelle Morales on Monday, May 17th, 2021, 4:50 PM PERMALINK

President Biden has proposed doubling the capital gains tax rate and increasing the corporate income tax to 28 percent as part of his $4 trillion spending plan. Both proposals are uncompetitive with China, encouraging companies to move U.S. jobs and capital overseas. 

The U.S. currently has a combined capital gains rate of over 29 percent inclusive of the 3.8 percent Obamacare tax and the 5.4 percent state average capital gains rate. Under Biden, this rate would approach 50 percent. This would give the U.S. a capital gains tax that is significantly higher than foreign competitors: 

China's Capital Gains Rate: 20%  

United States Now: 29.2% (20% + 3.8% Obamacare tax + 5.4% state average)  

United States Under Joe Biden: 48.8% (39.6% + 3.8% Obamacare tax + 5.4% state average)  

Under Biden’s plan, taxpayers in California will pay a top capital gains tax rate of 56.7 percent (39.6% + 3.8% + 13.3% California state rate = 56.7%). New Yorkers will pay a top capital gains rate of 52.2%, while New Jersey taxpayers will pay a top capital gains tax rate of 54.14%. 

Not only will Biden’s capital gains tax hike make us uncompetitive, it will also harm the economy, threaten the life savings of Americans, and could even reduce short term revenues.

Next, President Biden has proposed increasing the corporate income tax rate to 28 percent. Senator Joe Manchin (D-W.Va.) has come out against this rate, saying he would support a 25 percent rate instead. Ultimately, both rates are uncompetitive with China. 

The U.S. federal corporate tax rate is 21 percent. However, states also levy their own corporate tax rates, averaging an additional 6 percent. Because this state tax is deductible when paying the federal corporate rate, the combined national and subnational rate averages out to 25.77 percent.

A 28 percent federal rate would therefore result in a combined federal and state rate of 32 percent, higher than Communist China.

China’s rate: 25% 

U.S. national + subnational rate IF Democrats raise federal rate to 25 percent: 29.5% 

U.S. national + subnational rate IF Democrats raise federal rate to 28 percent: 32%

Voters agree that our corporate income tax rate should be competitive with China, according to polling conducted by HarrisX and commissioned by Americans for Tax Reform. After voters were informed that China has a 25 percent corporate rate, they were asked “At what level should the US set the corporate tax rate?” Among all respondents, the median answer was 21 percent.

Workers, consumers, and shareholders will bear the burden of an increased corporate tax rate. Such a hike will cause businesses to invest less in the United States and more overseas, resulting in fewer job opportunities and lower wages for American workers.

Photo Credit: Prachatai

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