On those extraordinary occasions when money is plentiful and free, policymakers don’t have to worry about tradeoffs. That time is running out, and in any event, tax increases have down sides. Does the proposed corporate tax increase, on balance, make sense?
The advantages to the Biden proposal are as follows:
- The corporate tax increase is supported by a majority of the public, so the politics work;
- The plan is a partial rollback of portions of the Trump tax cut which, predictably, resulted in right-wing recycling instead of the promised additional investment, so we’re not actually losing anything here;
- A significant percentage of the benefits of the Trump tax cut actually inured to foreigners; and
- The majority of the tax increase will be borne by the relatively wealthy individuals owning stock, which will reduce inequality.
The down sides, in a nutshell, are that it will make American businesses less profitable and competitive on the world stage, and that plenty of blue voters will be hit by the lost value in their retirement plans. As to the first objection, however, American corporate taxes will still make up a lower percentage of GDP than similar taxes in Europe, so the competitiveness argument isn’t that compelling even if, as seems likely, it proves impossible to negotiate an international agreement prohibiting a race to the bottom on tax rates.
To me, the pluses outweigh the minuses. We may wind up with a situation in which the corporate tax increase is reduced, and other revenue sources are found to make up the difference. If that happens, I will evaluate it at that time.