The best way to revive an economy as you head into a recession is to slap businesses and workers with a massive tax hike. Said no legitimate economist ever.
Yet that’s apparently the best plan President Joe Biden and Democrats in Congress can come up with. Their new so-called “Inflation Reduction Act,” which would do almost nothing to reduce inflation, also includes a $315 billion tax on businesses. This comes in the form of a 15% “minimum corporate tax” applied to major U.S. corporations.
Biden says that this tax will allow him to spend huge sums on green energy subsidies and tax credits and “pay for all of this by requiring big corporations to pay their fair share of taxes, with no tax increases at all for families making under $400,000 a year.”
While this may be literally true in the sense that Biden will levy the tax on corporations, in reality, it will burden everyday people the most. Most economists agree that much of the true burden of corporate taxes is borne by workers through lower wages. There’s some dispute about exactly what percentage is ultimately absorbed by workers, but even the most favorable, left-leaning analyses acknowledge that it’s a significant chunk. Meanwhile, most research says it’s the majority!
As I previously summarized:
“William C. Randolph of the Congressional Budget Office found that for every dollar raised by the corporate tax, approximately 70 cents comes out of workers’ wages. Further confirming this finding, research from the Kansas City Federal Reserve concluded that a 10% increase in corporate taxes reduces wages by 7%.”
So, Biden’s plan to squeeze $315 billion more out of corporations actually means squeezing hundreds of billions out of workers — at the exact time we can least afford it.
Not only are families suffering under the crushing weight of inflation, but we also just crossed into a second consecutive quarter of a shrinking economy, which despite the White House’s attempted gaslighting, remains the conventional definition of a recession. (It is even used as the definition in several federal laws.) Raising taxes on businesses and workers is hardly ever a good idea, but in our current situation, it would be a gut punch to the productive sector at the worst possible time.
Tax Foundation Vice President of Federal Tax & Economic Policy William McBride warns that this tax increase would “reduce incentives for … companies to invest, grow, hire, and raise wages.”
He adds that in our current economic situation, “it would be extremely unwise to raise taxes, especially the type of taxes advocated by this administration, which would do excessive harm to the economy.”
Indeed, it would. If Biden has any sense left in him, he’ll heed this warning. But more realistically, swing-vote Sen. Kyrsten Sinema may now be our only hope of killing this terrible bill and sparing the public more economic suffering.