President Joe Biden has proposed 30 tax increases totaling $3 trillion over the next decade. Not only would these tax increases hit working families and small businesses hard, but they would also provide a boost to Communist China and other foreign rivals.
While Mr. Biden and the left push tax increases, the Chinese Communist party is aggressively pushing a “Made in China 2025 plan,” which is designed to attract foreign investment so that the nation can become a global leader in various industrial sectors including aerospace, energy, information technology and pharmaceuticals.
One way China plans to achieve this goal is through tax cuts. Although China’s corporate rate is 25 percent, the country also has a preferential 15 percent rate for “qualifying” new/high tech enterprises. In addition, they recently enacted a 200 percent “super deduction” for eligible manufacturing research and development expenses. Chinese media are urging the Communist party to go even further and respond to U.S. tax hikes by cutting taxes again in order to attract more investment and bolster domestic manufacturing.
At the same time that China is pushing lower taxes to attract investment and jobs, Mr. Biden and the Democrats are proposing massive tax increases.
To start, Mr. Biden has proposed raising the corporate tax to 28 percent, which would give the U.S. a combined state-federal average of over 32 percent. This would be much higher than China and higher than the European average, which is 23 percent.
This will not just impact big business. One million C-corporations are classified as small employers, defined by the Small Business Administration as any independent business with fewer than 500 employees. These businesses will be slugged with Mr. Biden’s tax hike.
Workers will also be impacted in the form of fewer jobs, lower wages and higher prices. In fact, according to a 2017 report by Stephen Entin of the Tax Foundation, 70% of corporate taxes are borne by labor. Similarly, a 2020 study by the National Bureau of Economic Research found that 31% of the corporate tax falls on consumers through an increase in cost of goods and services.
Mr. Biden wants to double the capital gains tax to 43.4 percent, a tax hike that will see taxpayers in some states pay rates above 50 percent after state taxes. This would be more than double China’s rate of 20 percent as well as the average rate in the developed world of 23.2 percent. At a time when the economy is still recovering, we should be looking to promote more, not less investment in the U.S.
In addition to these broad tax hikes on businesses and workers, the Left is pushing discriminatory tax hikes on several industries that provide manufacturing jobs for Americans across the country. If these policies go into effect, we could see manufacturing flee from the U.S. to China and other countries.
For instance, Mr. Biden and the left have called for raising taxes on oil and gas businesses by repealing several important tax provisions such as the deduction for intangible drilling costs. This could threaten existing jobs across the country. According to 2017 data, oil and gas businesses collectively support 11 million high-paying manufacturing jobs and these jobs pay an average salary of $102,000, 85 percent higher than the typical private sector salary.
House Democrats have also proposed H.R. 3, legislation that would require pharmaceutical manufacturers to accept government set prices or face a new, 95 percent excise tax on their drugs. If signed into law, this proposal would threaten the 800,000 workers that are employed by pharmaceutical manufacturers and 4 million jobs that directly or indirectly rely on this innovation.
Not content with higher taxes in the U.S, Mr. Biden has also proposed a global minimum tax on American businesses operating overseas and wants to backstop this with a global minimum tax agreement amongst foreign countries.
Treasury Secretary Janet Yellen is pushing this global minimum tax under the flawed narrative that we need to lock in high taxes in order to “end the race to the bottom” and “make all citizens fairly share the burden of financing government.”
However, it is telling that the Biden administration is proposing a 15 percent minimum tax agreement to other countries but wants a 21 percent minimum tax for American businesses.
While specifics of this agreement still need to be reached, it is expected that China will find ways to avoid the global minimum tax agreement or ignore it entirely.
The fact is, the tax policies being pushed by Joe Biden and the Left will result in fewer jobs, less economic opportunity, and a stagnant economy. Rather than pushing these tax increases, we should be pushing policies that allow American workers and businesses to compete against foreign rivals like China.
• Alex Hendrie is director of tax policy at Americans for Tax Reform.