American Companies Would Still Pay Less Under Biden Tax Plan

Written by SK Ashby

When Republicans and even some centrist Democrats come out in opposition to raising taxes on corporations, one of the first things they'll say is that we have to remain competitive. If we raise taxes on corporations, foreign corporations will gain the upper hand they say.

I'm a firm believer that quality products and service deliver success far more than any fiscal policy does, but even if you believe low tax rates are the key to success, you should know that American companies would still pay less in taxes than their foreign competitors even if we raise tax rates as much as President Biden has called for.

If the corporate tax rate was raised to 28 percent, American companies would still pay a lower effective rate.

Industry representatives have aggressively lobbied against the proposal, which would increase the corporate tax rate to 28%, from the current 21%. The president also wants a minimum tax of 21% on overseas income, up from 10.5%. [...]

Reuters examined the effective tax rates – reflecting the actual tax payments companies reported – of 52 of the largest U.S.-based multinational firms, and then compared them to the rates paid by these companies’ main overseas competitors. The U.S. companies paid an average effective tax rate of 16% in 2020 compared to an average rate of 24% paid by 200 foreign companies that the U.S. firms named as their competitors in filings.

If Biden’s proposed tax rates were applied to the U.S. firms’ 2020 earnings, the companies would have paid effective rates averaging about five percentage points higher, or 21%, the Reuters analysis found.

Some of those who oppose higher corporate taxes may genuinely believe it will diminish American competitiveness, but for many more it's simply advocacy for rich shareholders.

You probably recall that Trump's tax cuts did not translate into more jobs or higher wages and did not even lead to higher investment in business operations. Trump's tax cuts were funneled directly to shareholders in the form of mega-mergers, buybacks and dividend payments. But raising taxes on corporations would have the opposite effect. Companies would have fewer (just slightly fewer) opportunities to enrich shareholders at the expense of everyone else including most of their own employees.

Most of our hyper-capitalistic fiscal policy including our lopsided tax system is driven by desires to protect shareholder wealth or increase it.