Rather, the world’s richest man is endorsing — albeit without a lot of specificity — the Biden administration’s plan to increase the corporate tax rate and close down many of its loopholes to pay for a massive investment in America’s infrastructure.
That’s good news for us non-billionaires.
Biden knows his history. Democratic presidents have not fared well when increasing taxes. Bill Clinton raised tax rates in 1993. Although the increased revenue from higher individual and corporate taxes helped spur a recovery, Democrats got hammered in the subsequent midterm election that swept Newt Gingrich into power and gave the House to Republicans until 2006.
And then the perception that the Affordable Care Act, known as Obamacare, was some kind of tax increase led to an even greater pummeling the next time the Democrats held the House, in the 2010 midterm that ushered in the tea party and blocked the Obama-Biden legislative agenda for the next six years.
This time, out of the chute and needing funds for a host of long-deferred infrastructure projects, the Biden administration has put a laser focus on corporate tax revenues.
And so it should. Wages have been stagnant for decades. But corporate stock returns have not languished — they have grown explosively. In the first three years of the Trump administration, wages rose 9%; the S&P 500 rose 42%. If we roll the clock back to 1964, the numbers become 852% for wages, unadjusted for inflation, versus 4,116% for stocks. Over decades, wealth has been beating wages by more than four times.
What about tax policy? Ever since World War II, the American tax system has been increasing its burden on workers, they of the stagnant wages, and lowering it on corporations, those of the explosive growth. Former President Donald Trump’s one major legislative accomplishment, the Tax Cut and Jobs Act of 2017, was overwhelmingly a corporate tax cut.
If we go back to 1964, we see America’s “Big Three” of taxes — the individual income, corporate income and Social Security/payroll taxes — combining to amount to 14.3% of America’s GDP. In 2019, the most recent year for which we have full records, the total was 15.1%, a slight increase in the total sum.
But if we focus on the composition of the Big Three taxes, we see a more dramatic story. Individual income taxes have gone up, from 7.4 to 8.1% of GDP. Payroll taxes, the most regressive of the lot, have skyrocketed, from 3.3 to 5.6%. Corporations? These big time winners from economic growth have seen their taxes as a percent of GDP plummet, from 3.6 to 1.1%.
Corporate income taxes, which provided just about 40% of federal revenue in 1943, now account for only about 7% of total federal dollars; the individual income and payroll taxes, combined, come in at 86%. In sum, America is taxing work, not wealth, adding to the burdens that life is placing on our middle class.
The Biden plan is smart. It doesn’t just raise the corporate tax rate — the proposal is to increase it to 28% from its current 21%, still below the 35% it was prior to the Trump cuts — but also does what the TCJA failed to do: close loopholes. The Biden plan seeks a global minimum corporate tax rate, backed up by denying US tax deductions to companies operating in low-tax jurisdictions.
It attempts to shut down “inversions” whereby American companies become children of corporate “parents” located offshore. It attacks accounting tricks by imposing a minimum tax on a corporation’s book value. These are highly technical matters that would have a beneficial effect: it would make companies like Bezos’ Amazon pay something.
There’s a time for everything, including to tax and spend. Jeff Bezos gets it. Wall Street does, too; Goldman Sachs and others have come out with tepid endorsements or at least muted criticisms of the proposed tax hike.
Most congressional Republicans will still cry wolf, because that is the nature of congressional Republicans. But the wolves of Wall Street know better. If taxes are the price we pay for a civilized society, as Oliver Wendell Holmes once put it, it is well past time to get the richest corporations in the history of civilization to pay some fair share of them, before our civilization crumbles and collapses. Even the man with the most to lose agrees.