The Biden administration is delving into the argument that higher corporate tax rates would ultimately help a struggling economy, saying the resulting infrastructure investments would boost growth.
Treasury Secretary Janet Yellen said Wednesday that it was “counterproductive” for then-President Donald Trump to assume that reducing the corporate tax rate to 21% from 35% in 2017 would make the economy more competitive and unleash the growth. Yellen said competing with tax rates came at the expense of investing in workers.
“Tax reform is not a zero-sum game,” he told reporters in a call. “Winning is an overused phrase, but we have a real victory in front of us now.”
President Joe Biden last week proposed a $ 2.3 trillion infrastructure plan that would be funded largely by raising the corporate tax rate to 28% and an expanded global minimum tax set at 21%. Yellen said the plan would double investment in worker skills and traditional infrastructure, such as roads and bridges, as well as modern infrastructure such as broadband.
The increases would produce approximately $ 2.5 trillion in revenue over 15 years, enough to cover the eight years of infrastructure investments being proposed.
The roughly $ 200 billion gap between how much taxes would increase and how much the administration wants to spend suggests there is room to address critics, such as West Virginia Sen. Joe Manchin, a key Democratic vote, who would prefer a 25% rate. . Republican lawmakers have opposed the plan because of its tax hikes and what they say is too broad a definition of infrastructure.
Commerce Secretary Gina Raimondo said Wednesday that businesses and lawmakers should come to the negotiating table, noting that there could be room to negotiate on the rate and schedule.
“There is room for compromise,” Raimondo said at the White House briefing. “What we can’t do, and what I’m imploring the business community not to do, is to say, ‘We don’t like 28. We’re leaving. We are not arguing. “
The key to the Biden administration’s speech is to bring corporate tax revenues closer to their historic levels, rather than closer to new highs that could make American companies less competitive globally.
Trump’s 2017 tax cuts cut corporate tax revenue in half to 1% of gross domestic product, which is a measure of total revenue in the economy. Income had previously equaled 2% of GDP. That higher figure is still below the 3% average for peer nations in the Organization for Economic Cooperation and Development, the Treasury Department said in its summary of the plan.
Still, some say the administration’s claim is misleading.
“Management should use statistics that directly measure the burden on the corporate sector,” said Kyle Pomerleau, a fellow at the conservative American Enterprise Institute. “In fact, many effective tax rate measures show that America’s burden is pretty close to the middle of the road. Biden’s plan would surely push to the high end among our main business partners. “
Yellen also said the 2017 tax cuts did not deliver on Trump’s promise of a fast-paced economy. Instead, the cuts encouraged other countries to keep lowering their own tax rates in a “race to the bottom” that the Biden plan believes can be stopped with an improved minimum tax and agreements with other nations.
Investments in infrastructure would increase the level of GDP in 2024 by 1.6%, according to estimates by Moody’s Analytics.
But the proposal has also drawn criticism from business groups such as the US Chamber of Commerce and the Business Roundtable, who argue that higher taxes would hurt US companies operating around the world and the economy in general.
The Penn-Wharton Budget Model released a report Wednesday saying that combined spending and taxes would cause public debt to rise by 2031 and then decrease by 2050. But following the plan, GDP would shrink 0.8% in 2050 .