Biden Administration Targets Big Corporations to Pay Up

By Rowland Goddard

Tax policies have headlined much of Biden’s campaign run and now in office, he looks to take action. Throughout the Trump administration, tax policy was implemented to stimulate growth in the economy. This was in the form of low corporate taxes as well as restructuring personal income tax brackets. High to medium-income earners saw the most savings, showing that the old administration was pursuing a trickle-down approach to the economy. The coronavirus has forced governments to spend enormous amounts of money, so Biden now looks to the same organizations and people that benefited from the previous tax policy to pay up. 

Corporate tax is the tax on the profits of a corporation. This rate varies widely depending on where a business operates. This has led to the creation of tax havens, which are countries where the corporate tax rate is low. On top of this, corporate taxes can be lowered through deductions such as government subsidies and tax loopholes. Businesses are therefore able to adjust their taxable income and end up paying a much lower effective corporate tax rate. This has been an ongoing issue for governments around the world as massive companies circumvent taxes owed. 

To tackle this issue, the new secretary of the treasury, Janet Yellen, has discussed implementing a minimum worldwide corporate tax rate of 21%. This would in essence eliminate tax-havens. The idea is supported by the Organisation for economic cooperation (OECD) and the European Commission. However, the OECD has long sought a two-pillar global taxation scheme where not only is an international minimum rate is enforced, but also companies are taxed where profits occur. If an international tax policy was agreed upon, it would be important that the deal was not dominated by the largest nations. 

The issues that the second pillar is trying to address can be seen with American tech giants, such as Apple, which makes much of its profits internationally but pays taxes primarily in America. Washington has made it difficult for countries to tax companies that are American but make profits internationally. This has caused governments to find ways of obtaining money from these corporations. France, for example, has created digital tax laws targeting American tech companies. This saw retaliation from the American government in the form of tariff threats.

Biden and Yellen have also vocalized their intent on raising domestic corporate tax rates and rates on high-income earners. Under the Obama administration, corporation tax was 35%, Trump’s tax cuts brought it down to 21% and now Biden has proposed raising it to 28%, the midway point. This has brought a handful of reactions as businesses are still recovering from the losses that occurred due to the pandemic. The beliefs and hope is that by the time taxes rise, most businesses will have more stable income sources. 

The problems Biden and Yellen will face are in US congress where tax laws are typically watered down. Although these potential policy changes would in theory help build the middle class, many Americans are wary about increases in taxes; even if they’re in a tax bracket that would remain unaffected by the changes. 

Biden’s administration recently released the proposed federal budget for next year which saw discretionary spending up 8.4%. The areas in which the budget has increased (health, education, and climate) are critical for America’s future. The government will need to raise money, but the question will be how. Many intellectuals believe that raising corporate taxes would be a job killer, and instead, the government should pursue other ways of financing, such as through debt. As Biden tries to bring together the country, it will be interesting to see if he can make progress on one of the most controversial topics, tax policy. 

Photo by New York Public Library on Unsplash

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