Biden’s Plan to Raise $2.5 Trillion in Corporate Taxes

Biden’s Plan to Raise $2.5 Trillion in Corporate Taxes

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Plus, Biden says ‘changes are certain’ on infrastructure plan
Wednesday, April 7, 2021

Biden’s Plan to Raise $2.5 Trillion From Corporations

The Biden administration on Wednesday unveiled its plan to overhaul the corporate tax code, providing a framework for raising trillions of dollars in revenue to help pay for the president’s ambitious economic agenda.

The “Made in America Tax Plan,” outlined in a 17-page document released by the Treasury Department, would raise $2.5 trillion over 15 years, enough to cover the $2.3 trillion cost of President Joe Biden’s recently released infrastructure plan.

If enacted, the plan would reverse the trend of falling corporate tax collections. In an op-ed published in The Wall Street Journal Wednesday, Treasury Secretary Janet Yellen described the dynamic the administration seeks to overcome: “Over the past three years, corporate tax collections have fallen to their lowest level since World War II: 1% of gross domestic product.”

Reversing course on the Trump tax cuts: The proposal makes it clear that the White House seeks to undo much of the GOP tax overhaul from four years ago. “The 2017 tax law reduced U.S. corporate tax rates, resulting in a significant decrease in corporate tax collection,” the outline of the plan says. “There is little evidence of an increase in economic growth or corporate investment resulting from these dramatic reductions in corporate tax rates.”

One of the plan’s main provisions would raise the corporate tax rate to 28% – halfway between the current 21% rate imposed by the GOP tax overhaul in 2017 and the 35% rate that was in effect before then.

In addition to raising the corporate tax rate, the plan also makes changes to the international provisions of the tax code as part of an effort to eliminate incentives to shift profits to low-tax jurisdictions. The White House wants to apply a minimum tax rate of 21% to foreign earnings, and convince other countries to do the same, thereby ending the “race to the bottom” in tax rates that has starved governments of revenues they need to invest domestically.

“Our tax revenues are already at their lowest levels in generations, and as they continue to drop lower we will have less money to invest in roads, bridges, broadband and R&D,” Treasury Secretary Janet Yellen told reporters. “By choosing to compete on taxes, we’ve neglected to compete on the skill of our workers and the strength of our infrastructure. It’s a self-defeating competition, which is why we’re proposing this ‘Made in America’ tax plan. It changes the game we play.”

The G-20 could reach an agreement on tax rate harmonization as soon as July, Italian Finance Minister Daniele Franco said Wednesday.

A minimum corporate tax: The Biden plan would also impose a minimum corporate tax of 15%, taking aim at companies that report billions in revenues and yet avoid paying federal income taxes.

Still, the proposed minimum tax is less aggressive than the one Biden campaigned on. The tax would apply only to firms with incomes over $2 billion, considerably higher than the $100 million threshold in Biden’s original plan. Only 180 companies meet that requirement, and the minimum tax would affect just 45 of them, the Treasury said.

Supporters and critics prepare for battle: In her Journal op-ed, Yellen said the plan would also make the tax system fairer and boost incentives for U.S. companies to invest at home. “Tax reform is not a zero-sum game, with corporations on one side and government on the other,” she wrote. “There are policies that are mutually beneficial, true win-wins. Washington has one in front of it right now.”

But business groups, Republicans and some centrist Democrats have signaled that they will not support the plan, at least in its current form. Sen. Joe Manchin (D-WV) has already said that he and several other Democrats are uncomfortable raising the corporate tax rate above 25%, and the U.S. Chamber of Commerce and the Business Roundtable have spoken out against tax hikes, with the latter saying the tax hike plan “threatens to subject the U.S. to a major competitive disadvantage.”

Biden Says ‘Changes Are Certain’ on His Infrastructure Plan

Biden on Wednesday said that compromise on his $2.25 trillion infrastructure plan was “inevitable” but that inaction was not an option.

“Democrats and Republicans will have ideas about what they like and what they don’t like about our plan. That’s a good thing,” Biden said. “Debate is welcome. Compromise is inevitable. Changes are certain.”

Biden said he and Vice President Kamala Harris would be meeting with Republicans and Democrats about the plan. “We will be open to good ideas and good faith negotiations,” Biden said, adding, “Here’s what we won’t be open to: We will not be open to doing nothing. Inaction simply is not an option.”

Republicans have criticized Biden’s plan, arguing that traditional infrastructure investments comprise only a fraction of the total spending it proposes. Biden said he was happy to debate what should be in the plan, but defended his proposals as the right path to help American workers. “We are America. We don’t just fix for today. We build for tomorrow,” he said. “The idea of infrastructure has always evolved to meet the aspirations of the American people, and their needs. And it’s evolving again today.”

As we noted above, Biden's proposed corporate tax increases have been dismissed by Republicans and criticized by business groups. Senate Minority Leader Mitch McConnell (R-KY) continues to call Biden’s plan “a Trojan horse for massive tax increases and a whole lot of more debt and whole lot of spending.”

McConnell said Wednesday that he’s “hopeful that not every single Democrat” will line up behind Biden’s bill and that some centrists “will have some skepticism about this massive growth of government.”

Biden on Wednesday reiterated a campaign pledge that he would not raise taxes on households earning less than $400,000 and said he would be open to other ideas about how to pay for his infrastructure package.

Number of the Day: 156 Million

The federal government has sent out more than 156 million Covid direct payments from the $1.9 trillion Covid relief law, the Treasury Department said, as another 25 million payments totaling $36 billion were disbursed on Wednesday. The latest round of so-called stimulus checks brings the total sent so far to about $372 billion, according to the Treasury Department.

Poll of the Day: A Surge in Democratic Affiliation

Gallup polling from the first quarter of the year finds that 49% of American adults identified with the Democratic Party or leaned Democratic compared with 40% who identified as Republicans or lean toward the GOP. Gallup says the 9 percentage-point edge is the largest it has measured since the fourth quarter of 2012.

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