Last week, former Vice President Biden released his presidential tax plan. He vowed to raise taxes immediately on U.S. businesses, even though our country is recovering from the worst economic crisis since the Great Depression. But, the last thing struggling American businesses need right now is a massive tax hike.
Of course, Mr. Biden’s tax plan shouldn’t come as a surprise. When he was Vice President, the U.S. corporate tax rate was the highest in the industrialized world. U.S. companies weren’t competitive with their foreign counterparts. And, there were constant headlines about companies moving their headquarters overseas, largely because of our outdated tax system.
In fact, a number of Mr. Biden’s proposals make me think he’s reliving his time as Vice President.
His plan to increase the corporate tax rate from 21 to 28 percent would quickly take us back to those days. Once again, this country would be saddled with the highest business tax rate in the industrialized world, taking into account federal and state taxes. U.S. companies, both large and small, would see higher taxes than their foreign competitors in France, Germany, the UK and our other major trading partners – in some cases by as much as 15 percentage points.
Mr. Biden says our tax system encourages offshoring, profit shifting, and inversions. And back when he was Vice President, those things were true.
But then we passed the Tax Cuts and Jobs Act.
When Mr. Biden was Vice President, U.S. tax law allowed companies to defer their foreign earnings until they were brought back to the United States. That system allowed many companies to delay paying any tax on their foreign earnings, in some cases indefinitely.
As part of tax reform, we specifically sought to end the parking of profits overseas. That’s why we enacted the tax on global intangible low-taxed income, or GILTI, which imposes a minimum tax on foreign earnings in low-tax countries.
And, when he was Vice President, there were plenty of opportunities for base erosion. That’s why we created the base erosion anti-abuse tax, or BEAT, which targets deductible payments made to foreign affiliates. We also imposed limits on the deductibility of interest. Together, these policies addressed loopholes so companies can’t erode the U.S. tax base.
While tax reform cracked down on notable abuses, it also made the United States a far more attractive place to invest. We created the foreign derived intangible income rules to incentivize companies to keep intellectual property in this country, not abroad. We also allowed immediate expensing of investments to encourage companies to put their facilities and jobs here on U.S. soil.
Now, Mr. Biden may be harkening back to 2014, but let’s all remember that companies were announcing left and right plans to invert or move their headquarters overseas. But since tax reform, I haven’t heard of any companies with inversion plans. Just the opposite, companies have called off inversions and even brought operations back to this country, citing tax reform as a main reason.
Even more curious is that Mr. Biden’s own talking points suggest that he supports a number of our tax-reform policies. Kimberly Clausing, who’s reportedly advising Mr. Biden on tax policy, has even said the Tax Cuts and Jobs Act “should be commended for providing some limits on tax avoidance through the GILTI and the BEAT.” What’s more, Ms. Clausing has estimated that the new rules will result in a 20-percent decrease in profit shifting. That’s consistent with the Joint Committee on Taxation’s macroeconomic estimate in 2017 that found tax reform would reduce profit shifting and increase the U.S. tax base.
Nevertheless, Mr. Biden wants to double down on increasing taxes on U.S. businesses and undo the progress we’ve seen since tax reform. In addition to higher taxes on domestic earnings, he also wants to increase the rate on U.S. companies’ foreign earnings to 21 percent. That’s almost double the 12.5-percent rate that the OECD is targeting for its global minimum tax.
I guess the former Vice President wants to ensure that no country can top the United States when it comes to tax rates.
And that’s not all. Mr. Biden proposes an additional 10 percent penalty on goods and services imported by U.S. companies from foreign affiliates. As the Washington Post Editorial Board noted earlier this month, his policy simply ignores the reality of global supply chains. Do we really want to encourage foreign countries to tax goods or services imported from the United States?
The truth is, Mr. Biden is trying to fix problems from the last administration. Republicans already met that challenge, and tax reform is working.
Data from the Bureau of Economic Analysis clearly shows that tax reform stemmed the flood of offshoring, while encouraging U.S. companies to invest here.
In fact, among U.S. multinationals, employment, investment, research, and production in the United States has increased at a faster rate in 2018 than the average rate over the past 20 years. Faster than the growth rate of U.S. multinational companies abroad.
Of course, there’s more work to be done. But tax reform made this country a more attractive place for businesses to headquarter, invest, and create jobs.
If the former Vice President succeeds with his plans, it won’t just be our businesses that will bear the brunt. The Joint Committee on Taxation and Congressional Budget Office have both concluded that 25 percent of the corporate tax is borne by workers. So, American workers will also feel the burden of the Biden plan through fewer jobs, reduced wages and less benefits.
Above all, the Biden tax plan ignores the reality of today. We’re trying to see our way out of a global pandemic. Undoing the progress we’ve made through tax reform, especially now, is certainly not a prescription for economic recovery and growth. What’s more, his plan will do nothing to speed the progress we’ve made in reducing unemployment since the height in the pandemic. Instead, it will work against it.
The Biden tax increases wouldn’t be good policy in the best of conditions, but they’re certainly bad policy now. If Mr. Biden really wants to keep living in the Obama era, he should recall President Obama’s sound advice on tax policy during a crisis, when he said “The last thing you want to do is raise taxes in the middle of a recession.”
That’s something we should all be able to agree on.