Summary List Placement
President Joe Biden kicked off a major debate in early April when he proposed raising the corporate tax rate from 21% to 28% to fund his $4 trillion infrastructure plan. Now JPMorgan has weighed in on the matter and it finds corporate tax revenue is lower in the US than elsewhere, even if the rate is now close to the international average.
And as sentiment appears strong in the US that American corporations don’t “pay their fair share,” the bank found that relative to other economies, the US “prioritizes raising tax revenue from personal income and property.” In other words, the current American tax system raises more from people’s paychecks and real-estate investments than from companies, compared to the rest of the world.
JPMorgan’s economic research note on Thursday found that prior to President Donald Trump’s 2017 tax cuts, the US statutory corporate tax rate of 35% was high compared to other countries, but that law slashed them by 13.2% — the largest decline ever.
Furthermore, the bank found that dating back to 2000, revenues actually collected from American corporate taxes only represented about 2% of gross domestic product (GDP), versus a 3% average globally. This reflects, the bank said, “a complex system of exemptions and deductions embedded in the US tax code that reduces the corporate tax base and results in corporate taxes contributing a much lower share of total tax revenue in the US than elsewhere.”
And after the Trump tax cut, this percentage fell to just 1% of GDP. This explains the American reliance on taxing personal income and housing, the note said.
“The US stands out as having both the highest share of revenue from personal income (both labor and investment) across the economies we examine, and the smallest share of tax revenue from taxes on goods and services,” the note said.
While Biden and Democrats have supported raising the corporate tax rate to fund infrastructure, Republican lawmakers oppose doing so. For example, Sen. Roger Wicker of Mississippi, the ranking Republican on the Senate Commerce Committee, said that rolling back Trump’s 2017 tax cuts would be “an almost impossible sell” to get bipartisan support.
And Insider reported on Thursday that a group of Republican senators are drafting their own infrastructure plan — one that would cost between $600 billion and $800 billion, and would be funded without any corporate tax hikes.
“My own view is that the pay-for ought to come from people who are using it. So if its an airport, the people who are flying,” Sen. Mitt Romney of Utah, who is helping draft the plan, told reporters. “If it’s a port, the people who are shipping into the port; if it’s a rail system, the people who are using the rails; If it’s highways, it ought to be gas if it’s a gasoline powered vehicle.”
But Biden has remained firm on increasing the corporate tax rate to 28%, saying in a speech last week that the tax hike would level the playing field for large companies and average Americans.
He said: “I’m not trying to punish anybody, but damn it, maybe it’s because I come from a middle-class neighborhood, I’m sick and tired of ordinary people being fleeced.”
JPMorgan doesn’t put it in quite those terms, but its note concludes that so-called ordinary people account for a greater share of tax revenue in the US than elsewhere.