President Joe Biden unveiled a proposal Thursday aimed to increase the corporate tax rate. From its current 21% rates, Biden’s plan will increase it to 28%. This will fund the President’s massive $2 trillion infrastructure plan.
RELATED: Jeff Bezos Supports Corporate Tax Hike, Infra Bill
Bottom Line: Higher Corporate Tax Rates
The Biden administration unveiled plans to overhaul the corporate tax code, lining up different proposals. However, they all point to the same ending: large companies will pay higher taxes to help fund Biden’s spending plans.
The plan hopes to raise $2.5 trillion in revenue over the next 15 years. American companies will bear the brunt of the planned hike. This entails a revisit of the tax codes and weeds out incentives that allow companies to lower or remove their liabilities. However, Biden’s proposal will also include new incentives to boost the administration’s green agenda. There are features in the plan that proposes replacing fossil fuel subsidies with tax incentives for green energy initiatives.
Some Corporations Willing To Pay More
Some companies showed their willingness to embrace the tax restructuring. Lyft President and co-founder John Zimmer said he supports the 28% corporate tax rate hike. “I think it’s important to make investments again in the country and the economy,” Mr. Zimmer said. Yesterday, Amazon founder and CEO Jeff Bezos issued a statement that supports the Infrastructure plan and acknowledged that it will require concessions from all sides. In addition, Bezos stated that Amazon supports a rise in the corporate tax rate.
While there are those who agreed with the initial proposal, there are those who wish to check the details first. The overall scope of the proposal will likely face resistance from the business community. Many companies enjoy the current tax code’s incentives that allowed them to file taxes much lower than the current 21%.
Goldman Sachs Thinks Tax Plan WIll Lower Earnings
Increasing the tax rate can lead to lower corporate earnings, according to Goldman Sachs. If implemented, the new tax rate can remove around 9% of next year’s S&P 500 per-share earnings. Instead of 28%, Goldman Sachs proposes that a 25% hike will reduce the drag to earnings by 3%. However, the Wall Street banker expects Biden’s plan to face a political landmine during deliberations. The firm warned that once the tax plans get a lot of airtime, the market will see a new cause for concern. “Equity investors will soon pivot focus from rising interest rates to raising tax rates,” Goldman Sachs strategists wrote.
Meanwhile, various business groups warned against adjusting the corporate tax rate again. In 2017, President Donald Trump lowered corporate tax rates from 35% to 21%. This early, the Business Roundtable said they will actively oppose attempts to raise taxes on corporations.
Neil Bradley, the US Chamber of Commerce’s executive vice president, told CNN Business that the timing isn’t right. “Coming out of the pandemic, raising taxes, especially to the degree the Biden administration is proposing, would hobble any economic recovery,” he said. Bradley did welcome Biden’s Infrastructure program but said that pairing it with a tax plan will backfire. “If you add [tax hikes] to an infrastructure bill,” he said, “all you’ve done is defeat the infrastructure bill,” Bradley concluded.
Room to Negotiate
In addition, the administration made it clear that the President’s proposal contains room to negotiate. as something of an opening bid and that there will be room to negotiate. Commerce Secretary Gina Raimondo asked lawmakers to remain open for discussion. At the same time, Raimondo said that the basic framework will remain as is. “We want to compromise. What we cannot do, and what I’m imploring the business community not to do, is to say, ‘We don’t like 28. We’re walking away. We’re not discussing.’ That’s unacceptable.” she said.
Watch the CNBC video reporting that after proposing a corporate tax hike from 21% to 28%, President Joe Biden offers a compromise:
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