New tax increases proposed by President Joe Biden would kill one million jobs and harm the economy, a new study released by the nation’s largest manufacturing association states.
For manufacturers, the tax reform of 2017 was like “rocket fuel” and if the new administration rolls back those reforms, “manufacturing workers will lose out on jobs, growth, and raises,” according to Jay Timmons, president and CEO of the National Association of Manufacturers (NAM).
“After decades of advocating for a tax system that provided competitive rates and modern international tax provisions, manufacturers in America kept our promises following the enactment of the 2017 tax reforms: we raised wages and benefits, we hired more American workers, and we invested in our communities,” Timmons said in a press release.
“If we undo those reforms, all of that will be put at significant risk.”
As a result of the tax cuts, U.S. manufacturers added 263,000 new jobs in 2018, according to the NAM, which was the best year for job creation in more than two decades.
The study conducted by Rice University economists John W. Diamond and George R. Zodrow for the NAM examined the short- and long-term impacts of Biden’s tax plan.
The study states that the proposed changes, including the increased corporate tax rate would cause one million job losses in the first two years. The average annual job losses would be 600,000 each year over 10 years and real wages would fall by 0.6 percent in the long run, according to the study.
The implementation of these changes would also reduce gross domestic product by $117 billion and investment in equipment and structures by $80 billion in 2023, the study says.
Diamond and Zodrow’s study analyzes the impact of undoing the tax cuts enacted in 2017 under the Tax Cuts and Jobs Act. The changes in the analysis included increasing the corporate tax rate to 28 percent, restoring the corporate Alternative Minimum Tax, removing expensing (100 percent bonus depreciation) of most investments in depreciable assets, and repealing the 20 percent deduction for certain pass-through business income immediately.
The analysis examined also includes increasing the top individual income tax rate to 39.6 percent, and taxing capital gains and dividend income at ordinary rates for taxpayers with incomes above $1 million, and taxing unrealized capital gains at death.
“The simulation results indicate that although such tax policy changes would raise significant amounts of revenues, these revenue increases would naturally have economic costs, and these costs increase with the size of the corporate income tax rate increase,” the researchers stated in the report.
Opposition to a potential corporate tax hike is mounting, as business groups claim such a move would give other countries a clear advantage and harm blue-collar jobs.
“The U.S. Chamber agrees with the Biden administration that there is a great need to invest in American infrastructure and that ‘inaction is simply not an option.’ However, that doesn’t mean we should proceed with tax hikes that will hurt American businesses and cost American jobs,” Neil Bradley, executive vice president at the U.S. Chamber of Commerce said in a statement on April 7.
“Tax reform worked to improve a system that no one felt was working and struck a balance between the need for companies to be able to compete in the global economy while protecting the U.S. tax base,” he wrote.
Raising the federal corporate tax rate to 28 percent from 21 percent is crucial for funding Biden’s $2.3 trillion infrastructure plan, called the American Jobs Plan. In addition, Biden’s plan would eliminate many special breaks, including both offshore and domestic. It also introduces a minimum tax of 15 percent on corporations’ book income.
The left-leaning Institute on Taxation and Economic Policy (ITEP) described Biden’s tax plan as “a revolutionary change.”
“It would end the spectacle of corporations earning huge profits for years while paying effective tax rates that are in the single digits if not zero. That alone would be worth celebrating,” Steve Wamhoff, director of federal tax policy at ITEP wrote in a blog.
At least 55 of the largest U.S. corporations including Nike and FedEx avoided paying federal corporate income taxes in 2020 despite having substantial pretax profits in the United States, according to a recent study by the ITEP.
Treasury Secretary Janet Yellen in her recent op-ed in the Wall Street Journal defended a corporate tax increase and claimed that the tax cuts of 2017 “put America at a disadvantage.”
“The law creates an incentive for U.S. companies to offshore their workers and investments—and to shift their profits to tax havens,” she wrote on April 7.
One of the key architects of the 2017 tax reform Rep. Kevin Brady (R-Texas) called Yellen’s op-ed “misguided” and “inaccurate.”
In an interview with Fox Business on April 10, Brady said the tax cuts made American businesses more competitive both in the United States and abroad and also brought manufacturing back to the country.
“In my view, their tax proposals coupled with what we’ve seen out of the Senate will trigger a second wave of U.S. companies moving their jobs and research overseas. Biden’s tax policy actually makes it better for a foreign company to operate in America, than an American company to operate here at home,” Brady said.
“This policy is very dangerous to blue-collar workers.”