President Joe Biden has proposed $4 trillion in new or higher taxes, including repeal of the Tax Cuts and Jobs Act (TCJA) passed in 2017.
As part of this plan, Biden has proposed raising the corporate rate from 21 percent to 28 percent, a 33 percent increase in the tax. He has also proposed a new global minimum tax, a 15 percent tax on “book earnings,” and a tax penalty for “outsourcing.”
Biden claims these tax hikes will ensure businesses “pay their fair share.” In reality, it will result in a massive tax increase on American businesses several times greater than the tax cut businesses received through the TCJA.
While the Biden plan may seem like a modest tax increase given that the TCJA reduced the rate from 35 percent to 21 percent, this ignores the fact that the TCJA also included numerous base broadening tax increases.
While the TCJA reduced taxes by $1.5 trillion, the business tax cut was just one fifth of this tax cut because these tax cuts were “offset” with corresponding tax increases. The TCJA was hardly a windfall for American businesses – according to the Joint Committee on Taxation, the business and international tax provisions net out to a $329 billion tax reduction over ten years.
While the corporate tax rate reduction from 35 percent to 21 percent reduced taxes by $1.35 trillion over the ten-year budget window, this was offset with base broadening tax increases. For instance, the TCJA required businesses to amortize research and experimentation expenditures (a $120 billion tax increase), repealed the deduction for domestic production (a $98 billion tax increase), and created a cap on the ability of businesses to deduct net interest (a $250 billion tax increase).
The same is true for the international tax reform section of the law. While the TCJA ended the double taxation of foreign income (a $223 billion tax cut), it offset this provision with a one-time tax on repatriated earnings and new base-erosion provisions that each totaled hundreds of billions of dollars per decade.
The remaining $1.2 trillion of tax cuts were found in the individual section of the tax code, which includes the reduction in income tax brackets, the doubling of the child tax credit (from $1,000 per child to $2,000), the doubling of the standard deduction (from $12,000 to $24,000 for a family), the creation of the 20 percent small business deduction for businesses filing under the individual tax code, and the expansion of the death tax.
Biden’s corporate tax hike is significantly larger than the TCJA tax cut. While estimates of the Biden tax hike plan vary, his tax increase on businesses is anywhere from $1.1 trillion to $1.9 trillion over the next decade – roughly 4 to 6 times greater than the TCJA corporate tax reduction.
For instance, an October 22, 2020 analysis of the Biden tax plan released by the Tax Foundation estimates his business tax increase would increase revenue by between $1.4 trillion and $1.5 trillion. This includes raising the corporate rate to 28 percent, the 15 percent corporate minimum tax, and several international tax increases.
Similarly, an analysis of Biden’s plan by the American Enterprise Institute estimates the business tax increases in the Biden plan would raise taxes by $1.96 trillion over the next decade. An analysis by the Tax Policy Center finds that the Biden plan would raise taxes on businesses by $1.12 trillion over the first decade and by $1.8 trillion over the second decade of enactment.
While these estimates vary substantially, it is clear that Biden’s tax hikes would be significantly greater than the tax cut in the TCJA. Biden’s plan is not about making businesses “pay their fair share,” it is about dramatically increasing taxes on American businesses. If he has his way, businesses would pay substantially more than they have in decades.