President Biden on Wednesday unveiled details of a sweeping $2.25 trillion infrastructure that would be funded by dramatically raising the taxes paid by U.S. corporations, an increase that could have a detrimental side effect on the U.S. economy, according to one analysis.
The eight-year initiative, dubbed the American Jobs Plan, comes on the heels of Biden’s $1.9 trillion American Rescue Plan. The White House said it will pay for the latest package by raising the corporate tax rate to 28% from 21% — rolling back part of former President Donald Trump’s 2017 tax cuts — and increasing the global minimum tax on U.S. corporations to 21% from 13%.
But recent findings from the Tax Foundation show that Biden’s plan to raise corporate taxes would reduce GDP, the broadest measure of goods and services produced in the country, by 0.8% and eliminate 159,000 jobs. It would also reduce workers’ wages by 0.7%, the nonpartisan organization said.
“The economic literature shows that corporate income taxes are one of the most harmful tax types for economic growth, as capital investment is sensitive to corporate taxation,” the analysis said. “The corporate income tax raises the pretax return firms required to pursue investment opportunities, reducing the pool of investments that firms find worthwhile to pursue. This lowers long-run economic output, reducing wages and living standards.”
By hiking the corporate tax rate to 28%, Biden would also bring the federal-state combined tax rate to roughly 32%, the highest statutory tax rate in the 37-member Organization for Economic Cooperation and Development, according to the Tax Foundation, “harming U.S. economic competitiveness and increasing the cost of investment in America.”
Biden is pitching the tax increases in order to offset the cost of the infrastructure bill — which will pump money into manufacturing, transportation, renewable energy, schools, affordable housing and combating climate change — over the next 15 years.