If Biden and the Democrats enact a corporate income tax rate increase, they will have to explain why they just increased your utility bills

If President Biden and congressional Democrats hike the corporate income tax rate, Iowa households and businesses will get stuck with higher utility bills. Democrats plan to impose a corporate income tax rate increase to 28%, even higher than communist China's 25%.

Customers bear the cost of corporate income taxes imposed on utility companies. Corporate income tax cuts drive utility rates down, corporate income tax hikes drive utility rates up.

Electric, gas, and water companies must get their billing rates approved by the respective state utility commissions. When the 2017 Tax Cuts and Jobs Act cut the corporate income tax rate from 35% to 21%, utility companies worked with officials to pass along the tax savings to customers, including at least four Iowa utilities.

Working with the Iowa Utilities Board, Iowa American Water Co., MidAmerican Energy Company, Black Hills Energy and Alliant Energy passed along tax savings to customers.

Alliant Energy: As noted in this April 13, 2018 DEI excerpt:

Alliant Energy announced this week that it will pass savings from lower federal taxes on to its customers in Iowa.

Annual savings, including tax-related savings from Alliant Energy’s transmission providers, are expected to be approximately $75 million, the company said.

“These tax savings are great for our Iowa customers and the new, lower corporate tax rate will benefit our families, businesses and communities today and in the future,” Doug Kopp, president of Alliant Energy’s Iowa energy company, said. “In the last six years, we’ve delivered about $500 million in other separate tax-related savings to customers, reducing energy costs.”

Typical residential electric customers will see an annual savings of approximately $50 to $60. Typical residential natural gas customers will see annual savings of approximately $30

Iowa American Water Co.: As noted in this Jan. 29, 2018 Des Moines Register article excerpt:

And Iowa-American Water Co., which provides service in eastern Iowa, would provide $1.5 million and $1.8 million to customers.

MidAmerican Energy Company: As noted in this April 5, 2018, Quad-City Times excerpt:

"A big part of the tax reform is the corporate income tax rate changing from 35 to 21 percent," said MidAmerican spokeswoman Tina Hoffman. "That is what the $42 million represents, with 100 percent going back to the customers."

The company expects to distribute $33 million on electrical bills and $8.8 million on natural gas bills. The total also includes annual savings for commercial and industrial consumers: $75 in electricity, $25 in natural gas for commercial customers and $8,000 in electricity, $175 in natural gas costs for industrial customers, she said.    

In addition, Hoffman said MidAmerican expects to save another $40 million to $50 million in 2018 from other tax-related benefits including new provisions related to how companies account for excess accumulated deferred taxes and depreciation. The utility plans to create an account to capture these benefits and use them to reduce the size or need for a future rate case in Iowa.

Black Hills Energy: As noted in this April 27, 2018 Iowa Utilities Board statement:

The Iowa Utilities Board issued multiple orders this week approving an estimated $78.7 million in savings for utility customers based on the IUB’s investigation and review of the tax refund proposals filed with the IUB by MidAmerican Energy, Alliant Energy-Interstate Power and Light, and Black Hills Energy regarding the 2017 federal tax reform law.

The IUB opened an investigation into the impact of the federal Tax Cut and Jobs Act of 2017 on Iowa’s rate-regulated utilities in January 2018, Docket No. INU-2018-0001. The utilities’ tax refund proposals detailing how customers would benefit are a result of this investigation. The new tax law reduced the federal corporate income tax rate from 35 percent to 21 percent.

The following tax refund proposal tariffs were approved by the IUB, subject to complaint or investigation:

Black Hills Energy will return an estimated $2.2 million to its natural gas customers in Docket No. TF-2018-0037.

Conversely, a vote for a corporate income tax rate hike is a vote for higher utility bills as households recover from the pandemic.

Many small businesses operate on tight margins and can't afford higher heating, cooling, gas, and refrigeration costs. President Biden should withdraw his tax increases.

Poland is moving in the wrong direction on taxes. In February the government decided -- against longstanding principles of international taxation -- to impose new taxes on digital advertising. This new levy, from 5% to 10% on digital ads, will affect the private digital media market in favor of the state-run pro-government media. This is a clear anti-market policy that will affect foreign direct investment and increase bias public spending.

In Poland, substantially raising tax revenue from private digital media businesses will enable the government to spend more on state media. For example: 

• Television, radio, and cinema companies whose annual advertising revenue is between PLN 1,000,000 ($262,692 USD) and PLN 50,000,000 ($13,134,585 USD) will pay a 7.5% tax. Companies with higher advertising revenue will pay 10%. 
• Newspapers reporting advertising revenue between PLN 15,000,000 ($3,940,375 USD) and PLN 30,000,000 ($7,880,751 USD) will pay a 2% tax, while newspapers earning more will pay 6%. 
• A 5% tax on Internet advertising will be placed on any company exceeding EUR 5,000,000 ($5,955,250 USD) of advertising revenue.

When plans to impose a new tax were announced, almost all private media went on strike, suspending publication of any content. Although the strike lasted only one day, it was the first time since 1989 that the media in Poland––often of different ideological orientations––united in this way and on such a large scale.

An American bad example: Maryland

In the United States, starting on March 14, Maryland was the first state to impose a digital advertising tax.  Republican Governor Larry Hogan vetoed this bill in May 2020. The bill violates the Internet Tax Freedom Act, but the Maryland Senate, run by Democrats, ignored the Governor’s decision, as well as fierce opposition from many legal scholars and overrode the veto. This bill imposes a tax on digital advertising with a tax rate span from 2.5% to 10% which is applied to a company’s global annual gross revenue from digital advertising services in Maryland. The cost of the digital advertising service tax will ultimately be borne by Maryland-based employers and consumers in the form of higher prices and fewer options for advertising services, as companies that utilize online platforms will pass the added costs on to consumers. This will not come as a surprise, as companies like Amazon and Google had to adjust prices in response to similar measures in France, Spain, and other countries.  This tax will be paid by people and not by the companies the government is targeting.  The Maryland DST will not only affect the economy in the state but also undermine the powerful opposition of the USA's global position against digital service taxes.

A European bad example: Austria

But much closer to Poland, in Europe, is the Austrian digital advertisement tax.  Despite the initial commitment to wait for and find a solution during the ongoing OECD negotiations, Austria implemented a digital advertisement tax of 5% on digital advertising on revenue, effective on January 1st, 2020. This levy is applied to all companies that reach or exceed an annual global revenue of 750 million Euro and annual revenue of 25 million Euro or more on digital advertising services. By nature of the design of the scope of the tax, only American tech companies are subject to it. It is the most advanced unilateral attempt by a European government to target U.S. digital corporations such as Google, Amazon, Facebook, and Apple.  As consequence, the United States Trade Representative (USTR) launched an investigation into Austria's digital advertisement tax and concluded it was discriminatory against American companies.

New taxes – new normal? 

The imposition of a new tax on advertising is harmful. But at least in Poland’s case, there’s something more to this story. The Polish government has long moved away from a free-market economic model to a statist hybrid in which social spending, state-owned companies, and the national media are seen as parts of a single taxpayer-funded orchestra. And the demands of this orchestra are constantly increasing. The tax on advertising would already be the 35^th  tax raised, or imposed, by the current government. It is worth remembering that as far as new "big" taxes are concerned, in 2016 the so-called bank tax among other things, was introduced, bringing an additional 4 billion zlotys ( more than 1 million USD) a year to the budget. Those Poles, whose income exceeds one million zlotys (more than260,000.00 USD), pay the solidarity levy, enriching the government by another 1.2 billion zlotys (more than 315,000,000.00 USD). In turn, revenues from the sugar levy imposed this year on all drinks containing sugar, sweeteners, and caffeine, taurine, and guarana are expected to amount to around 3 billion zlotys in 2021 (more than 780,000,000.00 USD). 

This year has also witnessed the introduction of the trade tax (i.e. tax on retail sales), which is expected to translate into an additional 1.5 billion zlotys (more than 390,000,000.00 USD) in the State coffers. The costs of new taxes are always passed on to the end customer. However, as far as manufacturers are concerned, they are not neutral either. Some new taxes are imposed on goods for which demand is highly elastic. Their producers raise prices, but at the same time are unable to maintain their former profitability. This translates into a reduction in the rate of investment in the economy, which is actually occurring in Poland, with the rate falling to 17.1 % in 2020 compared to 18.5 % in 2019. This is a rate 5 percent lower than the government's plan presented in 2016. (Strategy for Responsible Development). 

Taxes are not the answer

The decline in private investment cannot be indefinitely replaced by the investments subsidized by state-owned companies and the creation of new such entities. Unfortunately, new taxes stifle investment not only because of a reduction in their expected profitability but also because of the complexity of the fiscal and regulatory system they cause. In fact, all taxes on products and services introduced in Poland are based on complex and not entirely clear (even for tax advisors) mechanisms of calculation and collection. Moreover, even the solutions meant to simplify tax settlements, in practice they work exactly in the opposite direction (Slim Vat, Estonian Cit, JPK). As a result, Poland occupies distant places in the rankings assessing the operation of the tax system. For example, in the International Tax Competitiveness Index, Poland is ranked 3^rd from last among the  OECD countries and penultimate in Europe (just behind Italy), and in the "Paying Taxes" category of the World Bank's "Doing Business" ranking, Poland is ranked as low as  77^th - globally.  

A complicated tax system means that companies have to spend more and more money on legal services and consulting, which consumes resources away from productive activity. The smaller the company, the less capital it can devote to dealing with regulatory complexity, which translates into fewer innovative ideas: they are simply nipped in the bud. Another effect of growing fiscalization and the associated bureaucratization is the room for tax optimization, or tax avoidance. The more regulations there are, the more space there is for various lobbying organizations to seek 'exemptions' from such taxes, with translates into stifling market competition. 

Poland has enjoyed years of prosperity and in order to maintain the right policy course that contributed to the country’s success, the time of the pandemic should be a time devoted to reviewing the State’s economic policy, aimed at reducing fiscalism and reducing the regulatory burden.

*President of the Warsaw Enterprise Institute (Poland)

Several Democrats from high-tax states have threatened to vote against Biden’s infrastructure plan if it does not include a full repeal of the State and Local Tax (SALT) deduction cap. This repeal would disproportionately benefit wealthy Americans.  

As reported by Politico, dozens of Democrats have made this threat. On Tuesday, a powerful group of House Democrats — all but two members of the New York delegation — sent a letter demanding that the repeal of the SALT deduction cap be a part of any tax-related bills Congress takes up. Notably, Rep. Alexandria Ocasio-Cortez was one of the New York Democrats who refused to sign onto this letter. She had also voted against repealing the SALT deduction cap in 2019. 

Several New Jersey Democrats like Rep. Josh Gottheimer and Rep. Bill Pascrell have also called for the repeal's inclusion in President Biden’s next legislative package. 

In a press release by Senators Chuck Schumer and Kirsten Gillibrand, Sen. Gillibrand said, “I am proud to join my colleagues to introduce legislation to repeal the cap on the State and Local Tax deduction, a cynical policy passed by Republicans as a way to repay wealthy donors and lobbyists with big corporate tax cuts,” said Senator Gillibrand. This statement is especially ironic considering that lifting the SALT cap would be much more favorable to the rich than the Tax Cuts and Jobs Act was—with almost three times as much of the benefit going to the top one percent. 

All of this begs the question: what is more important to these Democrats? A multi-trillion infrastructure bill, which they claim the country desperately needs, or tax cuts for their rich constituents?

Many progressives have noted that the SALT deduction disproportionately benefits the wealthy. The New York Times described the SALT deduction as “The Tax Cut for the Rich That Democrats Love.” The Center for American Progress has stated that repeal of the SALT cap “should not be a top priority” as it would “overwhelmingly benefit the wealthy, not the middle class.” 

The left-of-center Tax Policy Center found that the top 1 percent of households would receive 56 percent of the benefit of repealing the SALT cap, and the top 5 percent of households would receive over 80 percent of the benefit. The bottom 80 percent of households would receive just 4 percent. 

Similarly, the Brookings Institution explained that almost all (96 percent) of the benefits of SALT cap repeal would go to the top quintile, 57 percent would benefit the top one percent (a cut of $33,100), and 25 percent would benefit the top 0.1 percent (for an average tax cut of nearly $145,000). Whether or not this is a tax cut for the wealthy is not up for debate—the evidence is clear.  

Repealing the SALT cap would be a costly addition to Biden's spending plan. Fully repealing the SALT deduction cap would cost $80 billion per year, or $400 billion in total, as the cap sunsets in 2026 along with several other tax provisions. This $400 billion proposal would tie Medicaid expansion for the single largest category in Joe Biden’s infrastructure plan. Because Democrats are attempting to fund this bill through tax hikes, the repeal of the SALT deduction cap could result in Democrats raising taxes elsewhere, including taxes directly or indirectly on low- and middle-income Americans.  

Democrats falsely claim that when the unlimited SALT Cap was repealed, Americans in blue states like New Jersey and New York saw a massive tax hike and were hit with double taxation, as they now pay federal taxes on income that was already subject to state and local taxes. 

In reality, a majority of Americans do not claim the SALT deduction, or any deduction. Instead, they claim the standard deduction. In 2018, 133 million American taxpayers (or 87% of filers) claimed the standard deduction. These taxpayers deduct zero state and local taxes, so they have no protection against double taxation. 

Democrats from high-tax states are desperate to repeal the SALT deduction cap because their constituents do not like the true burden of high taxes if they cannot deduct it. Quantitative evidence shows that the SALT deduction does make high-income Americans more tolerant of high state taxes. 

The high costs of living in states like New York, New Jersey, and California has resulted in a mass exodus. In New York, 66.4 percent of total moves were outbound. Similarly, 60.6 percent of New Jersey’s total moves were outbound.  

Because their state legislatures refuse to provide relief for their constituents, Democrats are attempting to curb the sting of high taxes from the U.S. Congress.  

At the same time President Biden and others on the left are pushing for the wealthy to "pay their fair share" in higher taxes, Blue State Democrats are pushing for tax cuts for their own wealthy constituents. 

The House of Representatives will soon vote on H.R. 7, the misleadingly-named “Paycheck Fairness Act,” legislation introduced by Rep. Rosa DeLauro (D-Conn.). If implemented, H.R. 7 would enact no new pay discrimination protections. Instead, the bill would give greedy trial lawyers unprecedented opportunity to target employers with frivolous lawsuits. 

Americans for Tax Reform and the Open Competition Center oppose the Paycheck Fairness Act and urge all members of Congress to vote NO. 

While the left claims H.R. 7 will close the “gender pay gap,” this legislation is not about equal pay for equal work. The Equal Pay Act of 1963 explicitly outlawed gender-based pay discrimination. And while men make slightly more on average than women, accurate estimates show that women make 95 to 98 cents per every dollar a man makes, a far narrower difference than the 22-cent pay gap the left constantly cites. 

Under the Equal Pay Act, employees must provide evidence that their bosses are engaging in pay discrimination based on sex. Once they have provided the evidence, the burden of proof shifts to the employer to prove that the wage difference is based on “any factor other than sex.” 

The Paycheck Fairness Act abolishes this decades-old standard and replaces it with a “bona fide factor other than sex” standard. This would require businesses to show that pay discrepancies between workers purportedly doing the same job are “consistent with business necessity.” 

While these may seem like mild semantic differences, this change would erode crucial flexibility in the workplace. Currently, employers can negotiate employment and compensation arrangements with male and female workers that prefer more flexibility to a larger paycheck. Under the new “bona fide factor” standard, employers would likely be pressured to enact standardized compensation packages for employees to mitigate risk of litigation. 

H.R. 7 would also lead to a dramatic decrease, or outright elimination, of performance-based pay in the American workplace. Under the new standard, employers could become liable for rewarding male and female employees with different bonuses based on performance, as a female worker could allege in court that these bonuses were not a “business necessity.” This risk would encourage businesses to adopt a uniform pay scale, reducing crucial incentives for employees to excel and suppressing pay across the board. 

Additionally, H.R. 7 would automatically make workers part of class-action lawsuits unless they opt-out, encouraging greedy trial lawyers to reap a windfall by filing class-action suits against businesses. H.R. 7 also effectively removes the $300,000 cap for punitive damages for employment discrimination cases, putting employers at even greater risk of litigation. 

Ultimately, the so-called Paycheck Fairness Act will only harm workers and expose employers to frivolous litigation. All members of Congress should vote NO.