Five Things to Know About Biden’s Corporate Income Tax Hike

President Biden’s Fiscal Year 2023 budget proposes raising the federal corporate income tax from 21 percent to 28 percent. This would leave the U.S. at a competitive disadvantage compared to China and Europe, and would harm low- and middle-income workers, consumers, retirees, and small businesses. It would make the out-of-control inflation problem worse and reduce jobs and wages.

Below are five things you should know about Biden’s corporate tax hike:

1. A Corporate Tax Hike Would Make the U.S. Uncompetitive

A 28 percent federal corporate tax rate would result in a combined federal and state rate of 32 percent, higher than China and higher than America’s major economic competitors. The developed world average (OECD) is 23.5 percent.

U.S. Federal + State Tax Rate Under Democrat Plan: 32%

China’s Corporate Tax Rate 25%

Developed World (OECD) Average National + Subnational Rate: 23.5%

Voters want the U.S. corporate income tax rate to be competitive with China, according to polling conducted by HarrisX.

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.

2. A Corporate Tax Hike Would Hit Small Businesses Organized as C-Corporations

Biden claims his tax plan makes large corporations pay their “fair share.” However, the plan will raise taxes on many small businesses that are structured as corporations.

As noted by the Small Business Administration Office of Advocacy, there are 31.7 million small businesses in the U.S. Of those, 25.7 million have no employees, while 6 million have employees. Of these 6 million small employers, 16.8 percent, or over 1 million of these businesses are classified as c-corporations. The SBA classifies a small employer as any independent business with fewer than 500 employees.

A study from the U.S. Chamber of Commerce found that 1.4 million small businesses organized as C-corporations will get hit by Biden’s corporate tax rate hike.

3. A Corporate Income Tax Hike Will Increase the Cost of Goods and Services

Corporations will not absorb the cost of the tax increase but will pass it along to consumers in the form of higher prices.

A 2020 study by the National Bureau of Economic Research found that 31% of the corporate tax falls on consumers. American families and small businesses will also see their utility bills increase. At least 300 investor-owned electric, gas, and water companies passed along the savings and reduced their rates when the corporate rate was cut in 2017. Raising taxes on corporations will result in these same utilities increasing their rates.

Inflation is already harming American families. Consumer prices increased by 7.9 percent on an annualized basis in February, according to the Bureau of Labor Statistics (BLS). This marks a steep increase compared to when Joe Biden took over the presidency, when 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:

Energy has increased by 25.6 percent in the past 12 months.
Gasoline has increased by 38 percent in the past 12 months.
Used cars and trucks have increased by 41.2 percent in the past 12 months.
Beef has increased 16.2 percent in the past 12 months.
Bacon has increased 18.8 percent in the past 12 months.
Chicken has increased 13.2 percent in the past 12 months.
Eggs have increased 11.4 percent in the past 12 months.
Fresh fruits have increased 10.6 percent in the past 12 months.
Furniture and bedding have increased 17.1 percent in the past 12 months.
Men’s suits and sport coats have increased 12.2 percent in the past 12 months.
Women’s dresses have increased 13.5 percent in the past 12 months.
Airfares have increased 12.7 percent in the past 12 months.

As a result, the average U.S. household spent $3,500 more in 2021 due to inflation, according to a Penn Wharton University of Pennsylvania Budget Model analysis.

4. Corporate Tax Increases Will be Harm Workers

In addition to raising the cost of goods and services, a corporate tax increase will reduce jobs and wages. 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.

This is especially concerning because wages are declining. Real average hourly earnings have decreased by 2.6 percent over the past year and have decreased by 0.8 percent from January to February. A corporate tax hike would exacerbate this problem.

5. A 28 Percent Corporate Tax Rate Would Threaten American Life Savings

A corporate tax increase will threaten the life savings of families by reducing the value of publicly traded stocks in brokerage accounts or in 401(k)s. Individual investors opened 10 million new brokerage accounts in 2020 and at least 53% of households own stock. In addition, 80 million to 100 million people have a 401(k), and 46.4 million households have an individual retirement account.

If Democrats have their way and raise taxes, millions of main street businesses, low- and middle-income workers, and retirees will be harmed. Prices will continue to increase, wages will remain stagnant, and fewer jobs will be created.