President Biden defended the inclusion of the largest corporate tax rate in decades in his $2.25 trillion spending package, despite criticism from CEOs and industry groups who say it could hurt U.S. economic growth.
“Raising taxes will not slow the economy at all,” Biden said during Friday remarks. “We’re asking corporate America to pay their fair share. It will not slow the economy at all.”
Biden introduced the so-called American Jobs Plan earlier this week, an eight-year initiative that will make massive investments in the nation’s roads and bridges, as well as transit systems, schools and hospitals. The measure will be funded 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 the White House is already facing headwinds over the proposed tax hikes: Both the U.S. Chamber of Commerce and Business Roundtable, which is comprised of CEOs from some of the nation’s biggest companies, warned that forcing corporations to pay more in federal taxes would ultimately derail the economy’s recovery from the coronavirus pandemic.
“Business Roundtable strongly opposes corporate tax increases as a pay-for for infrastructure investment,” CEO Joshua Bolten said in a statement. “Policymakers should avoid creating new barriers to job creation and economic growth, particularly during the recovery.”
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.
Critics also say that raising the corporate tax rate ultimately hurts workers: One study published by the American Enterprise Institute, a conservative think tank, found that a 1% increase in the corporate tax rate is correlated with a 0.5% decline in real wages. And in 2007, the nonpartisan Congressional Budget Office determined that workers pay more than 70% of the cost of corporate taxes.
“The corporate tax, it’s just not absorbed by the companies, it’s shouldered by workers in the terms of lower wages,” John Kartch, vice president of communications at the right-leaning Americans for Tax Reform, told FOX Business. “That’s something to consider, even a left-of-center economist will tell you that some measure is borne by lower wages.”
The corporate tax increase would generate about $740 billion in new revenue over the next decade, according to a recent analysis published by the Tax Policy Center.
Biden’s comments came on the heels of a blow-out jobs report that revealed employers added 916,000 jobs in March and the unemployment rate fell to 6%. There remain 8.4 million fewer jobs than there were one year ago, before the crisis began.
The president lauded the better-than-expected economic progress and the accelerating pace of vaccine distribution in the U.S., but warned that progress can be reversed if Americans stop taking certain actions — like wearing a mask and social distancing — to curb the spread of COVID-19.
“We still have a long way to go to get our economy back on track after the worst economic and job crisis in nearly a century,” he said.