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President Biden’s Plan

Presidential Seal of United States

The Biden Administration released the Made in America Tax Plan, a companion report to the American Jobs Plan that proposed how to pay for the new investments. In addition to closing the tax gap, the Made in America Tax Plan focuses on three additional measures that would increase the taxes that corporations pay to fund new investments in both physical and human infrastructure.

The first and single biggest measure is an increase in the corporate income tax rate from 21% to 28%. The Committee for a Responsible Federal Budget (CFRB) estimates that it would generate an average of about $85 billion per year over the ten-year period covered by the American Jobs Plan. Prior to supporting the Common Sense Coalition plan President Biden had signaled a willingness to consider an increase to 25% rather than 28%, which would generate about $50 billion in new revenue.

Funding Sources

Not Included in the Bipartisan Infrastructure Framework

  • Increase corporate income tax: 21% to 28%
  • Minimum corporate tax of 15%
  • Limit multinational tax shifting

Second, President Biden’s plan would establish a minimum tax of 15% on the profits that corporations report to investors to curtail excessive corporate tax avoidance through various legal means. CFRB estimates this would raise an additional $10 billion per year.

Third, President Biden’s Made in America Tax plan includes five provisions to reduce how much U.S. multinational corporations shift their tax burden to other countries with lower taxes. For example, it would close the tax exemption on the first 10% of returns on foreign assets and eliminate tax deductions multinational U.S. corporations can receive when they shift production overseas. CommonSense American’s analysis of CFRB’s estimates concluded that together President Biden’s five provisions for reducing corporate tax shifting would generate about $80 billion in additional revenue per year.

The Case For

President Biden argues that the overall tax burden in the nation has been shifting off of the largest and most profitable corporations and onto families and small businesses. The failure of U.S. corporations to pay their fair share is also evident, the White House argues, when you compare how much lower corporate taxes are in the U.S. with other developed countries.

The long-term shift of the tax burden off of wealthy corporations onto families and small businesses was accelerated, the President argues, during the pandemic. While working and middle-class families and small businesses bore the economic brunt of COVID, he argues, most wealthy corporations continued to do quite well.

President Biden argues that the point of the Made in America Plan is not to punish successful companies. He agrees that they are critical to American prosperity. Instead, he contends, it is only fair for those corporations that derive the greatest economic benefits from the nation’s public-funded infrastructure to pay their fair share to support it.

President Biden also argues that many of his proposals would reduce the significant incentives that corporate America’s army of lobbyists have managed to build into the tax code that reward U.S. multinational corporations for moving operations overseas. By closing these loopholes, the President argues, we will do more than provide the funding needed to improve the country’s infrastructure. The Made in American plan will also, he suggests, keep more good paying jobs at home that U.S. corporations have been shipping overseas.

The Case Against

Opponents of President Biden’s measures to increase corporate taxes argue that the key to good American jobs is a robust business sector, not government spending. They contend that it is foolish to think that government spending at the extraordinary levels the Biden administration proposes on infrastructure and everything else can produce as many good jobs as American businesses could without a significantly increased tax burden. It is simply economically counterproductive, they contend, to increase corporate taxes to flood state and local governments with money for infrastructure projects that are far down their cost-benefit priority list. Particularly at the exceptional levels of funding proposed, opponents argue, American businesses will generate far more good jobs than excessive infrastructure investments will.

Many opponents of the President’s corporate tax plans agree that it is important to keep more of U.S. multinationals’ operations at home. They argue that the key, however, is to make sure U.S. corporate taxes are competitive. It is an advantage rather than a disadvantage, they argue, that our corporate taxes are lower than other developed countries. Republican opposition to President Biden’s tax plan particularly focuses on the proposed increase in corporate income taxes. If we raise those rates, they argue, we will only create greater incentives for companies to move their business to where rates are lower.

The Evidence

The U.S. Department of Treasury cites Office of Management and Budget data showing that the corporate share of federal tax revenue has decreased from about 28% in 1950 to about 7% in 2019. Over that same period, workers’ share has increased from about 50% to about 85%.

The Peter G. Peterson Foundation charts the history of corporate income tax rates. Those rates remained close to 50% from 1950 to 1986. They then stayed around 35% from 1986 until 2018 when they were reduced to the current rate of 21%. The Treasury Department cites data from the Organization for Economic Cooperation and Development (OECD) which compares corporate taxes among the 38 member nations who are among the world’s most developed countries. OECD reports that corporations in countries with the highest taxes pay the equivalent of nearly 6% of those nations’ total economy. In countries at the low end of the OECD range, corporations pay taxes equivalent to about 0.2% of those nations’ economies. In countries in the middle of the range, corporations pay taxes equal to about 3% of their nations’ total economy. With corporate taxes equal to just under 1% of its economy, the U.S. has the 3rd lowest corporate taxes among the 38 OECD countries.