The BDN Opinion section operates independently and does not set newsroom policies or contribute to reporting or editing articles elsewhere in the newspaper or on bangordailynews.com.
Don’t believe everything you read on the internet. Particularly when it comes to tax policy.
President Joe Biden coupled his infrastructure plan with a proposed increase in the corporate tax rate. The Tax Cut and Jobs Act of 2017 lowered the top federal statutory rate on corporations to 21 percent, down from 35 percent.
The White House suggests splitting the baby and increasing it to 28 percent.
Biden backed the policy at a press conference by claiming there is “no evidence” increasing corporate rates has any negative effects on the economy.
Hours later, his Treasury Secretary Janet Yellen seemingly refuted the president by calling for a “global minimum tax.” If the U.S. raises its tax rate while other countries stay put, it could have a negative effect on the economy.
This is very complex stuff. But, due to the meme-ification of our political dialogue, simplistic analysis gets a lot more “likes.” One picture rotating through left-leaning circles shows a line graph that drops from 35 percent, down to 21 percent, and then back up to 28 percent. The point is that 28 percent is less than 35 percent, so Biden’s proposed increase can’t be a problem.
If the basis of your opinion on corporate income tax rates can be adequately explained by a single line graph meme, you may want to sit out this debate.
On a good day, tax policy is complicated. While individuals are generally mobile within the United States, rarely do they renounce their citizenship and flee the country. They remain subject to Washington’s tax whims, despite the threats made — “I’ll move to Canada if the other guy wins!” — leading up to an election.
Multinational corporations are different. If Apple’s California-based managers direct Estonian coders to develop software for iPhones assembled in China for sale in Brazil, how should they be taxed? And by whom?
Apple has an incentive to keep its tax bill as low as possible. So ensuring they earn income in places with lower tax rates is to their benefit. This is the exact problem that Secretary Yellen wants to address with her “global tax.”
Yet these perverse incentives work against Americans. Some of the opposition to Biden’s proposed increase is based on the theory that businesses will merely raise prices to offset the new tax liability. That is not exactly right; prices are “sticky” and things do not adjust overnight.
But capital is mobile, and, as former Gov. Paul LePage was fond of saying, goes where it is welcome and stays where it is appreciated. Large corporations make new investment decisions based on their expected net financial return, which is greatly impacted by tax policy.
So, when pursuing growth, corporations include their tax bill in the math. And, with the U.S. system, the headline rate of Washington is only a part of the story; there is an additional 6 percent tax levied on average by the states. That 21 percent headline rate is more like 26 percent after deductions.
In 2016, the 35 percent rate was more like 39 percent. Which left us higher than every developed country in the world, save Columbia.
If we want corporations to invest in the United States, we should encourage them to do so. Abolition of the corporate tax can be coupled with eliminating the capital gains tax rate; shareholders will then shoulder a greater share of the tax burden. When individuals receive income in any form — wages, gig-work, dividends — it should be treated equally.
If Biden really wants an infrastructure bill, it has to be coupled with an increase in economic activity. That activity can, and should, be stimulated by encouraging our largest businesses to invest at home.
Broadband can be a critical piece of that effort, but you still shouldn’t believe every meme you see on the internet.