Hike

Higher taxes could be coming for America's wealthy — and companies everywhere

Wednesday, March 17, 2021 by Robinhood Snacks | Disclosures

Recheck the checking account... Last week, President Biden's $1.9T stimulus bill passed, and $1.4K checks started rolling out. Now, Biden is turning his attention from distributing trillions to raising taxes... on corporations and the wealthy. This would be the first major tax hike in nearly 30 years. Some of the proposals reportedly being considered:

  • Raising the corporate tax rate to 28% from 21%. Trump slashed it to 21% from 35% in 2017.
  • Raising the income tax rate on people making $400K+ per year (less than 10% of total tax payers).
  • Raising the capital-gains tax rate (what you pay when you sell investments at a profit) for people earning at least $1M/year.

Hut, hut, hike... Some of the proposed hikes could hurt US GDP and wages long-term, according to the Tax Foundation (an independent think tank). Theoretically, the more $$$ companies spend on taxes, the less they have for growth and investments. But thanks to tax breaks and loopholes, America’s largest corporations paid an average tax rate of just ~11% on 2018 profits. Tax hike proposals are likely to get serious pushback. So why is Biden doing it?

  • Pay for "Build Back Better": Biden pledged $2T to clean energy innovation, and trillions more to building a modern infrastructure (think: roads, bridges). That could cost ~$7T.
  • Curb the debt: While the $1.9T stimulus was financed entirely by US government IOUs (aka: debt), the BBB plan likely won't be. Higher taxes could help pay for BBB, without adding to the US’ $28T debt.
  • Deliver: Dems have been calling for higher taxes on the rich and corporations. Biden could fulfill his campaign promise of doing that.
THE TAKEAWAY

Staying competitive is key... For decades, countries have been competing with each other to attract corporate investment for economic growth. The main way to do that: lower taxes for companies. In 2000, more than 55 countries had corporate tax rates above 30% — now, less than 20 do. The global average was 24% in 2018. By raising the rate to 28%, the US could lose corporate activity to other countries. That's why Treasury Secretary Janet Yellen is trying to forge an agreement with other countries for a global minimum corporate tax.