President Joe Biden wants voters to believe it is Donald Trump who would cut taxes for his friends at the expense of other members of the public who are not so well connected. But when you look at Biden’s tax plan, especially to raise corporate taxes selectively, it becomes clear that he, not the former president, plans to enrich wealthy donors at the expense of everyone else.
In addition to cutting income taxes for everyone, Trump’s Tax Cut and Jobs Act of 2017 lowered the corporate income tax rate from a near-world-high 35% to a world-average 21%. According to the nonpartisan Tax Foundation, these changes helped grow the economy by 1.7%, raised wages by 1.5%, and created 339,000 full-time jobs.
Biden now wants to raise the corporate rate to 28% and also increase the corporate minimum tax he created in 2022 from 15% to 21%. Combined with other tax hikes, the Tax Foundation estimates this would shrink the economy by 2.2%, cut wages by 1.6%, and cost 788,000 jobs.
Most corporations would be forced to pay higher taxes, which consumers would have to cover via lower wages and higher prices. But not all corporations would see their taxes rise in proportionate amounts. Despite what Biden calls a “corporate minimum tax,” many businesses not only won’t pay any taxes but would instead get checks from the federal government.
Who would pay more and who wouldn’t? It would depend on how much money a corporation donated to the Democratic Party and whether it had been gifted lucrative tax credits by Biden and the Democratic-controlled Congress.
Much of the new spending Biden secured from Congress through the Inflation Reduction Act and the Infrastructure Investment and Jobs Act doesn’t come through direct spending by federal government agencies. Instead, most is actually done through the tax code in the form of credits for politically favored corporations.
For example, if a company manufactured or installed solar panels or wind turbines, they were given tax breaks, as were companies that built electric vehicles or semiconductor factories. Hundreds of billions of dollars of such tax credits were passed out like candy, so much so that many new businesses that qualified for credits didn’t have profits sufficient to make full use of the credit amounts. Democrats got around this problem by creating secondary markets for tax credits, so a solar panel manufacturer with no profits could sell its tax credits to an investment bank such as J.P. Morgan for pennies on the dollar.
The tax code has always been full of carveouts for politically favored industries that donate to politicians. But the amount of money spent this way has doubled under Biden.
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The result is an immensely complicated, opaque tax code that punishes industries out of favor with the Democratic Party, such as traditional energy producers and manufacturers, while rewarding Democratic favorites.
The best tax systems, regardless of party, are simple, transparent, and broad based. Biden has taken our tax system in the opposite direction and proposes to take it further.