Top U.S. business leaders are stepping up pressure on lawmakers to kill off a White House plan to sharply raise corporate taxes as part of President Joe Biden’s massive $2.3 trillion spending proposal.
The Business Roundtable, a group representing America’s largest companies, said in a new survey that 98% of CEOs believe raising corporate taxes would have a “moderately” to “very” negative impact on their companies.
The lobbying group said it would harm hiring, wages, investment and U.S. competitiveness in a global economy. It would also slow the recovery from the coronavirus as the nation tries to move past the one-year-old pandemic.
The Biden administration wants to raise the corporate tax rate to 28% from 21% to help pay for its proposal. Included in the plan is a substantial amount of spending on traditional infrastructure projects such as road building, bridge repair, port improvements and the like.
Business leaders broadly support infrastructure spending for the long-term health of the U.S. economy, but they warn that higher taxes is the wrong way to go.
“The proposed tax increases on job creators would slow America’s recovery and hurt workers,” said Roundtable President Joshua Bolten.
White House officials have dismissed such worries, saying there’s no evidence higher business taxes would hamper the economy.
They contend business investment saw no sustained increase after the Trump administration slashed the corporate tax rate to 21% from 35% at the end of 2017. It was the first major change in corporate taxes in more than 30 years.
Raytheon RTX, -0.01% CEO Gregory Hayes, who also heads the roundtable’s tax and fiscal policy committee, counters that investment rose sharply in 2018 and 2019 in large part because of the Trump tax cuts.
Government data does show a spike in investment, but it began to fade by 2019 after President Trump launched a trade war with China. Tax-cut critics also suggest companies were just taking advantage of temporary investment incentives.
The Roundtable and the U.S. Chamber of Commerce, the nation’s two largest business groups, have both pushed back hard again the Biden tax proposal. Both groups have historically been averse to tax increases.
The fate of the proposal is uncertain. Democratic Sen. Joe Manchin of West Virginia said he opposes raising the corporate rate to 28%, suggesting he might accept a proposal to lift it to 25%. Manchin holds the key vote in a 50-50 Senate.
Republicans, for their part, are broadly opposed.
Yet complicating matters is the recent and unprecedented foray by large businesses into controversial political matters such as voting rules. In some cases companies have threatened to cut financial support for Republicans who support rule changes.
The move has angered many Republicans. Republican Sen. Marco Rubio said in a recent tweet that conservatives should rethink their support for big business.
The conservative-leaning Tax Foundation, meanwhile, said in a recent study that raising the rate to 28% would result in the U.S. having the highest corporate taxes among the world’s most developed economies. The authors contend the Biden plan would cost jobs and make the U.S. less competitive.
Similar arguments were put forth by the Trump administration before they cut the corporate tax rate. Supporters pointed to a spate of so-called corporate inversions during the Obama presidency when U.S.-based companies merged with foreign firms and moved their headquarters overseas to skirt higher American taxes.
Supporters of the Trump tax cuts also argued lower rates would spur more companies to stay in the U.S. or move foreign operations back home. While a smattering of firms did exactly that after the tax cut, the numbers were small.
Companies have a range of choices when their taxes are raised, economists say. They can raise prices on customers, limit wage growth, cut spending, accept lower profits, give less money back to shareholders — or move to lower-cost locations.
Critics such as the roundtable argue that companies are most likely to cut wages or hire fewer American workers. The CEO survey said 71% believe a higher rate would negatively affect hiring while two-thirds said it would slow wage growth.
The economic literature presents a more complicated picture. Companies in very competitive industries, for example, can’t always raise prices on customers for fear of losing market share to domestic or foreign rivals.
Nor can businesses afford to reduce wages if competition for labor is fierce, as is the case now in industries such as construction and manufacturing.
To prevent another wave of inversions or similar tax-escaping moves, the Biden proposal includes other rules that would try to stop companies from moving to low-tax locales to make sure they pay their “fair share.”
“I would say that the reason why the president is proposing these corporate tax increases is because that’s just the right thing to do,” said Cecilia Rouse, chairwoman of Biden’s Council of Economic Advisers, in a recent interview on CBS News’ “Face the Nation.”