The latest version of the Democrats socialist tax and spend bill contains $800 billion in tax increases on corporations. The legislation, known as the “Build Back Better Act,” imposes a 15 percent domestic corporate minimum tax on “book income” as well as a 15 percent global minimum tax on American businesses operating overseas. The legislation also creates a tax on share repurchases.
While the Left claims they are going after large, profitable corporations, these tax increases will actually hit working families in the form of higher prices, fewer jobs, and lower wages.
The 15 percent global minimum tax would be created by increasing the tax rate on GILTI (Global Intangible Low-Taxed Income) and applying it on a country-by-country basis, rather than a worldwide basis. This change would create significant tax complexity and uncertainty for businesses operating overseas. It would make American businesses uncompetitive and could cost millions of jobs and tens of billions of dollars in U.S. investment, as noted by a study conducted by Ernst and Young.
This tax increase is part of the Biden administration’s goal to create a 15 percent global minimum tax agreement across the world, in order to “end the race to the bottom” and “make all citizens fairly share the burden of financing government.”
However, two-thirds of voters do not trust other countries to play by the rules when it comes to implementing and enforcing this agreement, according to recent HarrisX polling.
The 15 percent domestic minimum tax is based on the premise that corporations exploit tax loopholes to pay zero income tax every year. In reality, businesses utilize legal tax deductions and credits that were created on a bipartisan basis to promote investment, job creation, and growth.
For instance, corporations utilize full business expensing to deduct the cost of new equipment and investment. This policy incentivizes new investment, leading to greater economic productivity, job growth, and higher wages and simplifies the tax code by equalizing the tax treatment of new investments with other business expenses such as wages, rent, and healthcare costs.
There is strong bipartisan support for full business expensing. Former Obama Economic Adviser Jason Furman has long supported full business expensing, and the policy was included in several Obama budgets (albeit as part of a net tax increase). In addition, the Obama White House correctly noted that the provision would help businesses and workers in press releases and fact sheets.
The 1% tax on stock buybacks would harm Americans that have their life savings invested in 401(k)s, IRAs and the stock market. Eighty to 100 million Americans have a 401(k), 46.4 million households have an individual retirement account and half of Generation-Zers and Millennials are invested in stocks.
Buybacks occur when a company is reinvesting by returning funds to shareholders and the economy. Contrary to the left’s narrative, stock buybacks do not come at the expense of productive investment, instead occurring after a company has no better or higher use for cash.
These tax increases will not be borne by corporations but will be passed along to working families including those making less than $400,000 per year.
The Joint Committee on Taxation estimates that 25 percent of the corporate tax falls on workers while the Tax Foundation estimates that 70 percent of this tax is borne by labor. Similarly, a 2020 study by the National Bureau of Economic Research found that 31 percent of the corporate tax falls on consumers through higher prices.
81 percent of voters believe that raising taxes on businesses and corporations will cause them to raise the prices of goods and services including 89 percent of Republicans, 81 percent of independents, 74 percent of Democrats, and 81 percent of suburban voters. Similarly, 74 percent of voters believe that raising taxes on corporations will increase the price of goods and services for Americans making less than $400,000 per year.
Inflation has already raised the cost of goods and services for American families. The consumer price index increased by 5.4 percent on an annualized basis in September, matching a 13-year high, according to the Bureau of Labor Statistics (BLS). In January 2021, before Joe Biden took over the presidency, annual inflation was at a stable 1.4 percent.
As noted by BLS, the cost of many goods and services have increased significantly over the past year:
- Gasoline has increased 42.1 percent in the past 12 months.
- Used cars and trucks have increased 24.4 percent in the past 12 months.
- Meats have increased 12.6 percent in the past 12 months.
- Fresh fish and seafood have increased 10.7 percent in the past 12 months.
- Bacon has increased 19.3 percent in the past 12 months.
- Eggs have increased 12.6 percent in the past 12 months.
- Furniture and bedding have increased 11.2 percent in the past 12 months.
- Children’s footwear has increased 11.9 percent in the past 12 months.
The tax increases on corporations being proposed by President Biden and Congressional Democrats will not harm big businesses but will, instead, be passed along to working families. It will exacerbate inflation by increasing the costs of goods and services, while also reducing the life savings of Americans and making the U.S. less globally competitive.