Economic Development Now

The Urban-Brookings Tax Policy Center cohosted a webinar with the University of North Carolina Tax Center titled What Are the Effects of the Biden Administration’s Corporate Tax Proposals?

Jared Bernstein, a member of the U.S. Council of Economic Affairs, kicked off the webinar by detailing how the response to the current crisis has been “uniquely strong”. He identified some of the labor market’s constraints and barriers that exist between supply and demand, such as the coronavirus, vaccination rates, affordable childcare, and enhanced unemployment insurance.

Shifting the discussion to tax policy, Bernstein believes in a few motivating operations to prioritize. First, we must “relink” pre-tax growth and revenue because “the fingerprints of the 2017 tax cuts have been found at the scene of the crime” of lost revenue. Second, we need to reverse incentives for offshore investment in jobs. U.S. multinational companies can be taxed at a 50 percent discount relative to domestic peers because of the current exclusion from U.S. minimum tax. Third, there is a pressing need to recalibrate taxation of work versus wealth, which follows along with Biden’s promise of no tax increases on family incomes below $400,000. Lastly, Bernstein points out the disproportionate nature of the IRS defunding and the importance of incentivizing clean energy production.

Panel 1

The first panel was dedicated to discussing Biden’s proposed minimum tax on financial accounting income (book income). The proposal would implement a backstop in the form of a 15 percent minimum tax on worldwide book income for large corporations that pre-tax net income above $2 billion. This is a small subset of companies but ones that have loopholed their way into paying no federal income tax. As highlighted by panelist Natasha Sarin, the Treasury Department’s deputy assistant secretary for economic policy, there is currently a level of uncertainty in exactly how these companies are gaming the system because “the increased wedge between the structures of book and tax income has widened” in past decades. The common objection to implementing this backstop rather than mending loopholes often overlooks the degree of difficulty in taxing corporations, and Sarin compares the latter to a game of whack-a-mole because of the dynamic nature of current tax codes.

The panel finished with a question about the reason for differences in opinion on the proposal across fields of accounting, law, economics, etc. MIT accounting professor Michelle Hanlon pointed out the challenge in publishing reports due to no contribution claims from those already assuming it is not a good idea. There is often a clique approach across these fields to answering questions while interdisciplinary opinions can be valuable and should be pursued. 

Panel 2

The second panel focused mainly on the effects of Biden’s proposals—specifically the increase in corporate income tax rate from 21 to 28 percent and changes to tax credits on energy and fossil fuels—on domestic investment. Harvard finance and law professor Mihir Desai believes there was a missed opportunity in the proposal to rethink business taxation because the tradition of penalizing C corporations (corporations taxed separately from their owners, as opposed to S corporations) is continuing. He emphasized the illusion that “corporate tax is borne exclusively by shareholders” and that the rhetoric is “wrapped in some notion of fairness and equity”.

Panelists brought up reforms for the proposal that could be useful for the future of business taxation, and shared insights about the Tax Cuts and Jobs Act of 2017, the expiration of 199 Cap A in 2026, and the phasing out of bonus depreciation. 

For more information on Biden’s tax proposals, Tax Foundation offers an in-depth analysis.