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WHO GETS THE PAIN: It’s one of the big questions about one of the signature planks in President Joe Biden’s new tax hike framework — who would bear the brunt of increasing the corporate rate from 21 percent to 28 percent.
Such a move would certainly put the U.S. out of step with other countries in the Organization for Economic Cooperation and Development, when counting state and local corporate levies, though there are certainly prominent figures who say that raising the rate from 21 percent would be no big deal — lots of Democratic politicians, for instance, and former Treasury Secretary Larry Summers.
But the big question hanging over all this is how much a corporate tax hike would hit investors, and what portion gets borne by workers. The Joint Committee on Taxation believes that a quarter of the corporate tax’s burden falls on workers in the long-term, with the rest on the owners of capital.
So it stands to reason that the experts who are least convinced that workers would be particularly hurt by a corporate tax are more likely to favor Biden’s proposal.
Steve Rosenthal of the Urban-Brookings Tax Policy argues that foreign investors and rich shareholders will pay most of the costs associated with a higher corporate rate — and that it would take at least about a decade for the long-term burden to fall on workers, even if it did amount to 25 percent or so.
As Rosenthal noted in a paper last year, prominent economists like Alan Auerbach and Paul Krugman have suggested that it would take quite awhile for, say, a company to move operations out of the U.S. because of a higher corporate rate — something that would hurt workers in the form of lower wages.
“I think the short run case that shareholders are the ones who bear a corporate tax increase is strong,” Rosenthal said. “But the long run case also is strong.”
MORE ON THAT IN A BIT, but thanks for coming back for your first April edition of Weekly Tax, where we’re hoping the string of good basketball continues tonight.
Well, I guess that makes sense: Today marks 299 years since the Dutch explorer Jacob Roggeveen became the first European to find Easter Island in the Pacific Ocean — which he then so named because, yes, he got there on Easter Sunday. (Roggeveen was looking for a mythical continent named Terra Australis when he found Easter Island, perhaps best known for its hundreds of huge statues.)
Tell us something that will make us say: “Well, I guess that makes sense.”
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BACK TO THE CORPORATE TAX: Biden and his team have made it pretty clear that his pledge not to raise taxes on anyone making under $400,000 a year only counted for direct taxes — not something like this, where workers will end up bearing a piece of the long-term impact of a corporate tax increase.
It’s also true that it’s tough to be too precise about the impact of the corporate tax on workers. For instance, Marty Sullivan of Tax Notes pointed out that it’s pretty clear that the burden of the corporate tax now is more likely to fall on labor than it did six decades ago, because of globalization, and to fall on capital in high-profit industries like tech and pharma.
But “nobody knows for sure” how to quantify those statements, Sullivan added. Still, Sullivan is among the experts who are O.K. with the U.S. raising taxes, but believes the Biden administration should stay away from hiking the corporate rate if it can.
Instead, he suggests getting rid of corporate tax breaks to raise revenues from that sector and to directly tax the rich, through higher rates and estate tax levels, among other ideas.
Trying to raise taxes “indirectly through the corporate tax could be damaging to the U.S. if foreign countries continue lowering their corporate taxes,” Sullivan wrote in an email. “Why shoot ourselves in the foot by raising the corporate tax when we have other (aforementioned) methods that would work so much better?”
TOUGH TRAILS TO NAVIGATE: Republicans and corporations aren’t always getting along these days, but GOP lawmakers keep making it pretty clear that they don’t want to raise taxes on big business in an infrastructure package. “The worst way to pay for it is to tax job creators,” Sen. Roger Wicker (R-Miss.) said on NBC’s “Meet the Press.”
So let’s take another look at the potential divides among Democrats, as they try to again pass something massive with their narrow majorities.
And we’re not just talking about a 25 percent corporate rate or 28 percent: Sen. Joe Manchin (D-W.Va.) has even talked about implementing a value-added tax, given that he wants an infrastructure bill to be fully offset. And as it happens, that’s one of the ideas that the Progressive Policy Institute sent to Democratic leaders, as it offered what it called “a menu of radically pragmatic options” to pay for the upcoming package.
Also on that list, in addition to a corporate tax rate increase: A price on carbon, repealing the step up in basis that allows heirs to pay fewer taxes on inherited assets and a cap on itemized deductions.
As The Wall Street Journal noted, there are kind of multiple flip sides to that proposed approach. Some Democrats, like House Transportation Chair Peter DeFazio (D-Ore.), see no issue in borrowing more money to fund a large infrastructure package, while others are unsure about raising taxes when the economy is still in a recovery or, like Rep. Josh Gottheimer (D-N.J.), want to pursue ideas that have a chance of gaining bipartisan support.
LOOKING AHEAD: Senate Finance Chair Ron Wyden (D-Ore.) and Sens. Sherrod Brown (D-Ohio) and Mark Warner (D-Va.) are set to roll out their own revamp of America’s international tax system this afternoon. The senators haven’t dropped too many clues about what’s in that plan, though Wyden has suggested that it will differ in some respects from Biden’s most recent proposals.
A Senate Finance spokesperson said that the new framework would offer detailed overhauls of three major planks of the 2017 GOP tax law, H.R. 1 (115) — the levy on Global Intangible Low-Taxed Income (GILTI), the deduction for Foreign Derived Intangible Income (FDII), and the Base Erosion and Anti-Abuse Tax (BEAT) — while also giving new incentives for domestic production.
TOTALLY UNDER CONTROL: The French energy conglomerate Total is so far resisting pressure to stop making payments stemming from an offshore gas project to Myanmar, The Financial Times reports. The company also won’t stop its work at the Yadana offshore gasfield, even amid a growing campaign since a February coup in Myanmar to reduce tax payments to the government. Patrick Pouyanné, Total’s chief executive, said in a letter released over the weekend that it would be against the law to not pay taxes — but also said that, in a way, the company really wasn’t paying them at the moment “for the simple reason that the banking system no longer functions.” Total also isn’t putting the $4 million it owes Myanmar each month in escrow, because it fears that would put local managers at risk running afoul of authorities, but is donating an equal amount to groups trying to improve human rights in Myanmar.
MULTIPLE, MULTIPLE BILLIONS: The state of New York would raise some $5 billion in new revenues, mostly from the wealthy and corporations, under a compromise reached by Democratic leaders in the state. But as our Anna Gronewold notes, it’s definitely a lopsided compromise — Gov. Andrew Cuomo had sought $1.5 billion, while legislative leaders wanted $6.5 billion. The New York spending plan would also raise about a half-billion dollars from mobile sports betting, on top of the temporary increases in the corporate franchise tax and income tax rates on top earners. Under the plan, the state income tax would top out at a 10.9 percent rate — meaning that certain New York City residents, who pay a top rate of 3.88 percent, would face the highest income taxes in the country. (California’s top rate is 13.3 percent.)
Democratic governors are lobbying Biden to scrap the cap on state and local tax deductions.
Washington Post editorial board: “Why are some Democrats pushing a tax break for the rich?”
The Institute on Taxation and Economic Policy: 55 big U.S. corporations paid no federal income taxes last year.
Hospitality businesses want a tax break on perishable food losses.
Statues on Easter Island are, on average, 13 feet high and weigh 14 tons.