- Biden’s tax plan includes increasing the corporate income tax rate from 21% to 28%.
- Although higher than the current rate, it wouldn’t be the highest rate seen over the years for the top bracket.
- Some lobbying groups representing large companies are already fighting the plan on Capitol Hill.
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President Joe Biden is looking to bump up the tax rates for corporations and wealthy Americans to help pay for a $3.5 trillion spending plan that includes universal childcare, tuition-free community college, and paid family leave.
But some large corporations aren’t too happy with it. As the Washington Post reported, lobbying groups that represent companies like Apple, Disney, and ExxonMobil are already swarming to Capitol Hill to fight against the tax hikes.
“When corporations and the wealthiest start to pay their fair share, it’s going to put millions of people — according to all the estimates — millions of people to work in jobs that are going to help them punch their ticket to the middle class and stay in the middle class,” Biden said on Friday. “And everyone will do better, including corporate America.”
So what exactly is Biden’s plan and why are large corporations against it?
The corporate income tax rate could rise from 21% to 28% — which is lower than many previous years’ rates
The corporate tax rate has been 21% since 2018, when former President Donald Trump signed into law the Tax Cuts and Jobs Act of 2017 that reduced the rate from the previous 35% for those in the top taxable income bracket.
But, thanks to legal loopholes and exemptions, some of the largest corporations in America don’t pay a cent in federal income taxes. Biden said after August’s weak job report on Friday that “it’s about time they begin to pay their fair share” citing that at least 55 of the largest corporations in the US, including Nike and Salesforce, paid no federal income taxes in 2020. During that year, when millions of Americans lost their jobs or were worried about their financial situation, corporate profits have seen a massive spike.
As the following chart shows, corporate profit before taxes was $1.8 trillion annualized during the second quarter of 2020, less than the almost $2 trillion annualized in the first quarter of the year. However, profits have climbed ever since the second quarter and were over $3 trillion annualized in the second quarter of this year.
As Insider’s Juliana Kaplan previously reported, Biden has waffled on the exact rate for a corporate tax hike — saying it could be somewhere between 25% and 28%.
Either way, the marginal tax rate for corporations in the top tax income bracket would not be as high as it has been in previous years, as the following chart shows. It’s important to note that the top income bracket has changed over time. For instance, from 1993 to 2017 the top bracket included companies that made roughly $18 million in taxable income. From 1988 to 1992, the highest bracket included companies that made over $335,000 in taxable income.
The chart only includes the years from 1946 to 2020 to illustrate just how the federal corporate tax rates have changed over this time period. As the chart highlights, the lowest rate was from 2018 to 2020 after Trump’s law dropped the rate from 35% to 21%. So although the proposed tax hike would be higher for corporations than it was after Trump’s law, it wouldn’t be as high as the top tax rate seen in previous years.
But companies still aren’t happy. Business Roundtable, which includes Apple CEO Tim Cook as part of the board, is one group planning to squash the hike.
“It’s a massive tax increase on US business, which is really damaging, not just to the shareholders of all those businesses but to the employees and customers as well,” Josh Bolten, the CEO of Business Roundtable, previously said.
Biden’s plan also includes other taxes on the wealthiest Americans
Biden’s plan does not include increasing taxes for anyone making under $400,000. The individual tax rate would increase from 37% to 39.6% for individuals making over $452,700 and for married couples making over $509,300. That means those at the top will see the marginal tax rate go back to the 39.6% seen before Trump’s law.
Additionally, those with an income of over $1 million would have to include long-term capital gains and dividends as ordinary, taxable income under the plan.
“President Biden’s proposal to tax capital gains at higher, ordinary income tax rates would lead the U.S. to have the highest top marginal tax rate on capital gains in the Organisation for Economic Co-operation and Development (OECD),” Tax Foundation’s Clifton Painter wrote.
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