The Biden administration has rolled out a new infrastructure plan with the promise it will create millions of jobs, critics contend the “Made in America” plan would push the U.S. corporate tax rate so high that it will make it harder for U.S. companies to compete.
“President Joe Biden’s proposal to raise the federal corporate income tax rate to 28% would increase the combined average top tax rate on corporate income to 32.4%, the highest in the Organisation of Economic Co-operation and Development (OECD), reducing U.S. competitiveness and long-run economic growth,” said Gary Watson, a senior policy analyst at the Tax Foundation in Washington, D.C.
Watson said in a new blog that while much public relations focus has been on the federal rate, it is critical to include state tax rates when thinking about the total tax burden on corporations and their income.
Right now corporations in the U.S. pay federal corporate income taxes of 21% plus state corporate taxes that range from zero to 11.5%, resulting in a combined average top tax rate of 25.8% in 2021, the foundation said.
If Congress is able to enact Biden’s plan this year, it would create a 28% corporate tax rate and corporations operating in 32 states and the District of Columbia would face the highest combined corporate tax rate in the OECD, a distinction currently held by France with a 32.0% rate, according to the foundation.
Next year, France will lower its corporate tax rate to 25.8% leaving Portugal with the highest corporate tax rate in the OECD at 31.5%, Watson said.
With the Biden hike to 28%, corporations in Iowa, Minnesota, New Jersey and Pennsylvania would all face a combined corporate income tax rate at or above 35%, he said.
Only seven states—Ohio, Nevada, North Carolina, South Dakota, Texas, Washington, and Wyoming—would face a corporate rate less than 30%, all of which forgo a corporate income tax except North Carolina, which has a low rate of 2.5%.
“It is important to include state corporate income taxes when considering how raising the federal rate would impact U.S. competitiveness,” Watson said. “Raising the combined U.S. corporate rate to the top of the OECD would encourage corporations to depart the U.S. and reduce economic output and worker wages across the income spectrum. Retaining the 21% corporate rate ensures the U.S. remains an attractive location for corporate investment."
Right now, the economy is on a rebound after being crippled by the Covid pandemic last year. The U.S. economy added 916,000 jobs last month—the largest increase since August—as more American workers receive the coronavirus vaccines, the Bureau of Labor Statistics announced today.