President Biden’s ambitious plan to increase corporate taxes does more than just reverse much of the overhaul pushed through by his predecessor. It also offers a profoundly different vision of how to make the United States more competitive and how to foot the bill.
When President Donald J. Trump and a Republican Congress rewrote the tax code in 2017, most of the benefits went to the wealthiest Americans, with lower rates on businesses and on profits from investments. The guiding principle, proponents argued, was that cutting taxes on corporations and investors would encourage businesses to expand, creating more jobs and generating more wealth for everyone.
By contrast, the animating idea behind the tax plan put forward by the Biden administration on Wednesday is that the best way to increase America’s competitiveness and foster economic growth is to raise corporate taxes to finance huge investments in transportation, broadband, utilities and more.
The Business Roundtable, the U.S. Chamber of Commerce and the National Association of Manufacturers all welcomed the idea of pumping money into repairing and building the nation’s infrastructure, but recoiled at raising corporate taxes to do so.
“We strongly oppose the general tax increases proposed by the administration, which will slow the economic recovery and make the U.S. less competitive globally — the exact opposite of the goals of the infrastructure plan,” the chamber’s chief policy officer, Neil Bradley, said in a statement.
The biggest and most eye-catching proposal is to trim the sizable reduction in the corporate tax rate enacted under Mr. Trump. In 2017, Republicans shrank the rate to 21 percent from 35 percent. Mr. Biden wants to nudge the rate part of the way back — to 28 percent.
Even economists favoring low rates on business acknowledge that the 2017 tax cuts did not produce much of an increase in investment. Gross domestic product grew at a rate of 2.4 percent in the two years leading up to the law and 2.4 percent in the two years after it passed.
Debates about the tax code are really debates about who should bear the burden of paying for what society deems important — highways and bridges, clean water and high-speed broadband, basic research and development.
By shifting the tax burden, the Biden administration is saying corporations — among the biggest winners the last time around — should pick up more of the tab this time.
Economists have debated who actually bears the cost of higher corporate taxes — shareholders and owners or workers. Research by the Congressional Budget Office, the Treasury Department and the Brookings Institution has concluded that those who own the business generally pay about three-quarters of a tax increase, with workers picking up the rest.