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This One Chart Proves Biden’s Corporate Tax Rate Increase Is a Mistake

Image: Creative Commons.

As part of his infrastructure plan, President Biden is proposing to raise the federal corporate tax rate from 21 percent to 28 percent and broaden the corporate tax base. The administration projects the plan would raise $2 trillion over 15 years.

The CBO currently projects corporate tax revenues will be $3.5 trillion over the next decade. So Biden’s plan over its first decade would roughly increase corporate tax revenues 38 percent. In reality, his plan would not raise that much because corporations would respond strongly to avoid the increase, but this percentage gives a sense of the large size of the proposed hike.

Biden’s infrastructure plan promises to strengthen America’s competitiveness, but higher corporate taxes would do the opposite. The U.S. corporate tax rate is already higher than the global average, and Biden’s plan would make the rate even less competitive.

The chart shows data from KPMG for 2021. The U.S. federal rate is 21 percent and the average state rate is 7.5 percent. Taking into account that state corporate taxes are deducted against the federal tax, the current U.S. federal-state rate is 27 percent. The KPMG data also accounts for subnational corporate taxes in other countries.

The current U.S. corporate tax rate is higher than the average global rate for 173 countries of 23.7 percent. It is also higher than Asia at 21.6 percent and Europe at 19.0 percent. With Biden’s increase, the U.S. federal-state corporate tax rate would rise to 33.4 percent, far above the averages abroad.

 

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Chris Edwards is the director of tax policy studies at Cato and editor of www​.Down​siz​ing​Gov​ern​ment​.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation. Edwards has testified to Congress on fiscal issues many times, and his articles on tax and budget policies have appeared in the Washington Post, the Wall Street Journal, and other major newspapers. He is the author of Downsizing the Federal Government and coauthor of Global Tax Revolution.

Written By

Chris Edwards is the director of tax policy studies at Cato and editor of www​.Down​siz​ing​Gov​ern​ment​.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation.

2 Comments

2 Comments

  1. Steve DesJardins

    April 6, 2021 at 2:07 pm

    Does this account for Value Added Taxes which raise the cost of doing business in Europe significantly?

  2. Dave Nelson

    April 14, 2021 at 4:08 pm

    The origin of corporate taxes lies in the inability (at that time) to directly tax personal income. People like J.P. Morgan had huge wealth and annual income and there was no way to tax any of it.

    So instead Congress taxed the companies he owned and that remains the case to this day.

    A thought: Might it be better to tax dividends and asset sales as ordinary income and set the Corporate tax lower? Taxing deferred income might be both fair and worthwhile as well.

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