Biden’s Second Surrender The Democrats push for a hike in corporate taxes that would be a gift to the Chinese. Kimberley Strassel
Joe Biden this week completed the U.S. pullout from Afghanistan, in a humiliating military surrender to the Taliban. The president is more interested in working on a second capitulation—a wholesale economic surrender to China and other rivals.
Members of the House Ways and Means Committee were notified that markup will begin as early as next Thursday on Democratic plans for the largest tax increase in at least 50 years. House leaders have yet to provide any text for the committee work, since they continue to negotiate the details. But the White House and Democratic lawmakers have made clear the broad contours, which are best read as an exercise in U.S. self-sabotage—a gift to foreign companies and foreign workers everywhere.
Washington excels at spin, but few lines may prove more economically destructive than the continued Democratic claim that the 2017 tax law was about cuts for the “rich.” Even critics at the time acknowledged the law’s real highlight—its central focus—was its overdue and comprehensive reform of the corporate tax system. As this page’s editorial columns noted, the cuts on the individual side weren’t nearly “as ambitious,” making only marginal trims to top rates.
The corporate changes were specifically designed to restore America’s global competitiveness, which had eroded over decades. It cut the top corporate rate, which at 35% was the highest in the developed world. It got rid of a backward “world-wide” tax system, in which U.S. companies paid taxes in countries where they earned income and again if they returned money here. This was fundamentally a “pro-America” reform.
And it worked. An estimated $1.6 trillion flowed back into the U.S. from 2018 to 2020, which businesses poured into American factories, American jobs, American wages. Remember that giant sucking sound of the Obama years, as corporations fled to foreign shores? There hasn’t been a major corporate inversion announced since the tax reform passed. Prior to the Covid interruption, the U.S. economy was firing on every cylinder. At least 10 countries have reduced their own corporate tax rates since, an acknowledgment the U.S. is cleaning their clocks.
Why destroy this success? Because all the billionaire dollars in the world won’t foot Mr. Biden’s entitlement bill. So Democrats want to plunder the corporate side—even though it means debilitating U.S. firms globally, and advancing those in China, Europe and the Middle East. The president proposes rocketing the corporate rate back to 28%, an increase of one-third. The nonpartisan Tax Foundation notes this would create a federal-state combined tax rate of 32.34%, “highest in the OECD and among Group of Seven (G7) countries, harming U.S. economic competitiveness and increasing the cost of investment in America.”
The White House rejoinder is to brag about the deal it cut in June in which G-7 countries will impose a “15% global minimum tax” on their own companies’ foreign profits. Democrats insist this will keep U.S. companies from fleeing their higher tax rates. But what they aren’t noting is that the Biden plan would impose a 75% higher minimum tax on American companies, with an effective rate of 26.25%. It’s yet another windfall to foreign competitors.
Then there’s the Biden war on American energy, with proposals to inflict soaring new taxes on the lifeblood of the American economy—U.S. oil and gas producers, pipelines and refiners. The tax plan would strip small and large companies of critical deductions that inspire cleaner investment, produce jobs and generate royalties. This is a stunning handout to foreign energy competitors—including Iran, Venezuela and Russia—on whose oil Americans will again grow dependent.
Mr. Biden spent the past weeks describing an Afghan situation completely at odds with reality, and he’s done much the same for months with regard to corporate tax hikes. He explained in April that he’ll insist on a 28% corporate tax rate because he’s “sick and tired of ordinary people being fleeced” by companies that don’t pay their “fair share.”
If there’s one idea that unites economists, it’s that corporations don’t pay the corporate tax—they pass it on to workers, consumers and stockholders. The Joint Committee on Taxation last month produced an analysis of how the corporate tax hike would be distributed among taxpayers. With a rate hike to even 25%, within 10 years some 172 million taxpayers would be paying the bill—98.4% of them with incomes below $500,000.
So not only would the corporate tax hikes destroy American competitiveness; they’d sock it to average Americans. And that’s before you take into consideration Mr. Biden’s plans to raise individual rates, to slam Main Street with tax hikes and the end of the small-business deduction, and to cripple family farms with a supercharged death tax.
All this explains why Democrats are intent on finalizing details in the quiet August recess, the better to steamroll it through Congress in September. Before Americans can understand that this isn’t about tax fairness at all. It’s the Biden White House waving the white flag of economic surrender.
Write to kim@wsj.com.
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