President Biden’s next major legislative proposal will be a $3 trillion to $4 trillion spending plan, to be “paid for” by raising taxes on families and businesses.
While candidate Biden pledged not to raise a “single penny” of taxes on any American earning less than $400,000 per year, the White House last week clarified that this pledge applies to households, not individuals.
This has led some pundits to argue that Mr. Biden is already breaking his pledge because a person earning over $200,000 per year married to someone making the same amount would see tax increases.
However, this debate misses the fact that even before the “clarification,” Mr. Biden’s tax increase plan hurts American workers and families earning below $400,000. His tax increases on corporations will harm Americans in the form of fewer job opportunities, lower wages, higher utility bills and reduced savings.
Mr. Biden has proposed raising the corporate tax from 21% to 28%, a 33% increase. He has expressed support for several other corporate tax increases, including a new global minimum tax, a tax on “book earnings” as high as 15% and an unspecified tax penalty for “outsourcing.”
This could raise taxes by as much as $1.9 trillion over the next decade, which could be almost four to six times greater than the tax cut businesses saw from the Tax Cuts and Jobs and Act of 2017.
These tax increases would be directly borne by workers.
According to a 2017 study by Stephen Entin of the Tax Foundation, labor (or workers) bear around 70% of the burden of corporate taxes. As noted by Mr. Entin, economic studies over the last few decades have found that labor bears between 50% and 100% of the burden of the corporate income tax. For instance, a 2006 study by William Randolph of the Congressional Budget Office found that 74% of the corporate tax is borne by domestic labor.
Even studies by the left-of-center Tax Policy Center — which assume that roughly half of corporate earnings are “super normal” returns that are entirely unaffected by raising taxes — find that about 20% of the corporate tax is borne by labor.
Assuming Mr. Biden’s full $1.9 trillion corporate tax increase plan is enacted into law, American workers will be hundreds of billions of dollars worse off in the form of fewer jobs and lower wages under either scenario.
Even the portion of corporate taxes that impact capital, not labor, could harm American families by reducing the life savings of millions of Americans that are invested in the stock market or that are saving for retirement through a 401(k) or IRA.
This is not just “the rich.” As many as 53% of American households own stock, according to the Federal Reserve, while 80 million to 100 million Americans have a 401(k) and 46.4 million households have an individual retirement account, according to recent data.
Younger Americans have also begun investing in the stock market in increasing numbers during the coronavirus pandemic. More than 10 million Americans opened brokerage accounts in 2020 and it is estimated that half of Gen-Zers and millennials are trading in stocks, according to recent reports.
The benefits of a lower corporate tax are not just economic theory. When the corporate tax rate was reduced in 2017, American workers and families benefited.
In the months after the tax cut was signed into law, workers saw bonuses, pay raises, increased 401(k) matches and new employee benefit programs. Utility companies also directly passed along the benefits of lower taxes to customers in the form of lower electric, gas and water bills.
In 2019, median household income increased by $4,440 or 6.8% — the largest one-year wage growth in history. Average hourly earnings grew by 3% or more for 20 consecutive months between 2018 and the start of 2020, according to BLS.
The bottom 25% of wage earners saw 4% or greater annual monthly wage growth for 26 consecutive months under President Trump, according to the Atlanta Fed. This wage growth was greater than the top 25% of wage earners in every month.
Under this economy, there were more job openings than job seekers for 24 consecutive months. In March 2018, the ratio of unemployed persons to job openings dropped to 0.9.
The fact is, we should not be raising taxes coming out of an economic downturn where millions of Americans remain out of work and at least 100,000 businesses have closed due to the pandemic.
While the left will undoubtedly try to downplay it, President Biden’s plan to raise taxes on American corporations will harm American workers and families, including those making less than $400,000 per year. It will suppress new jobs and wage growth, increase utility bills, and reduce the life savings of Americans.
• Alex Hendrie is director of tax policy at Americans for Tax Reform.