Biden’s Proposed Corporate Tax Raise and How it Stacks up to the Past
In the first week of April, President Joe Biden unveiled his plan to raise the corporate tax rate from 21% to 28%. The Made in America Tax Plan aims to, “make American companies and workers more competitive by eliminating incentives to offshore investment, substantially reducing profit shifting, countering tax competition on corporate rates, and providing tax preferences for clean energy production. Importantly, this tax plan would generate new funding to pay for a sustained increase in investments in infrastructure, research, and support for manufacturing, fully paying for the investments in the American Jobs Plan over a 15-year period and continuing to generate revenue on a permanent basis.” This plan positions the U.S., according to Biden, on a more efficient and competitive basis that will also have corporations pay their fair share. This article will take a look back and give a brief history of the corporate tax rate and its more modern iterations. Also, this will cover the proposed plan that would unite the international community with a singular tax rate.
The corporate tax rate was first composed in 1894 but was quickly ruled unconstitutional because said Income Tax Act of 1894 was seen as a direct tax on interest, dividends, and rent which was a violation of the current laws. The modern iteration was enacted in 1909 with the ratification of the 16th amendment. Simply put, this tax is based on the amount that companies obtain while operating their business, usually collected every year. Throughout the decades, this rate has fluctuated rapidly. In its first iteration, the rate was at 1%. It then steadily increased over the next few years until the 1940s where it was drastically raised in hopes of raising funds for the war effort. It reached its highest during the ’50s at a percentage of 52.8, but during the late 80’s it began a gradual decrease. It stayed at a steady 35% through the ’90s and early 2000s and was lowered to its current 21% in 2017 by former president Donald Trump. President Biden is proposing to raise it to 28%, still lower than the rate before its reform in 2017.
Biden not only plans to raise the corporate tax here in America but also on the international level. Biden plans to follow suit with Treasury Secretary Janet Yellen’s calls for a global minimum tax for corporations. Both the White House and some members of Congress are pushing for the minimum tax on overseas profits to rise from 10.5% to 21%, the same that Yellen is pushing on a global scale. Yellen states that “Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity.” She is also working in tandem with OECD (Organization for Economic Cooperation and Development) and G20 to work towards this goal. Even if a deal is established, it is non-binding and up to individual countries' discretion if they will follow suit.
Of course, it is no secret that corporations demonstrate a litany of workarounds or back door solutions to circumvent paying taxes. From shell companies in the Cayman Islands to profit-shifting across various nations, a plethora of outlets allow said corporations to minimize pay. It will still be seen if all loopholes will be closed and if new ones do not sprout up. The hope for both a raise in the domestic and international corporate tax is to raise money that can be funneled into programs like Biden’s infrastructure plan and to create a more even and competitive global field without harming the common person.
