The most popular tax increase in modern American history

Today, President Biden spoke from Pittsburgh, Pennsylvania, launching the reveal of his physical infrastructure plan, a $2.3 trillion once-in-a-generation, and as expected, he let the tax kitty out of the bag.

And while Republicans and groups like the Chamber of Commerce are howling about the taxes, they are shaping up to be the most popular tax increases in history. Indeed, a Politico/Morning Consult poll found that Americans support funding the infrastructure plan with tax increases on the rich and corporations by a 2:1 margin. 54% of the surveyed are supportive of the tax increases, while 27% they still want infrastructure spending, just without the tax increases.

A quick look at just what kind of taxes the President is proposing will not only reveal why the support is so strong, but also why this support, if anything, is likely to grow. Below is a summary and explanation of the tax proposals from the detailed plan the White House released this morning.

This part of the plan - the President is poised to unveil a second package focusing on health care, child care, and basic service needs in the coming weeks - is funded primarily through making sure that large, multinational corporations begin paying their fair share.

The corporate tax rate is headed to 28%, from the current 21%. This, the White House says, will mean that corporate income taxes will constitute roughly the same share of the economy as it has through the last 20 years. The Trump tax cuts dropped this share through the floor, and Biden is intent on bringing it back.

But simply raising the corporate income tax rate can backfire if it just means that smaller companies who cannot afford to hire expensive accountants or take advantage of offshoring have to pay the heightened rate while multinationals listed on stock exchanges can continue to use the tax code to evade their responsibilities.


The President has two ideas to solve that: even the tax burden playing field globally and link a public corporation's minimum tax burden to the income it shows off to its investors.

Currently, return on foreign assets of a multinational corporation is taxed at half the domestic corporate income tax rate - that is, a cool 10.5% under the current tax code - after they get a full exemption on the first 10% of those returns. Joe Biden is looking remove this sweetheart deal and increase the minimum tax for US multinationals 21%. The Biden plan also calculates this tax on a country-by-country basis, so that a company can't hide most of their profits in a tax haven country and escape US taxes. Basically, this means that companies will still be able to take a credit against that 21% for taxes they pay in other countries (for income generated by assets in those countries), but their taxes in low-tax countries will no longer be offset by taxes they pay in higher-tax countries, as far as the IRS is concerned.

So why wouldn't corporations just move to another country where they have a lower minimum tax? Joe Biden is planning on using his very formidable foreign policy portfolio to push our trading partners to put in place strong global minimum tax proposals as well. And if they don't? Companies based in foreign countries without an adequate global minimum tax floor will be denied tax deductions in the US that allow them bring their US profits home relatively easily.

Reforming the corporate tax code in this way will also discourage inversion. Inversion is the practice where American corporations move their headquarters to a foreign country - sometimes even to a foreign mailbox - but continue business as usual in the United States, including management, operations, productions and all. If corporations suddenly find that there is really no tax benefit to moving to a mailbox in Bermuda, why would they go through the trouble?

Bottom line: if this plan is enacted, multinationals won't be able to go country-shopping just to avoid paying taxes.


Second, public corporations - those whose shares trade on the stock exchange - essentially (and legally) keep two sets of books. There's the income they report on earning calls - always meant to put themselves in the best light with the goal of increasing share value, and the income they use to file their income taxes. The income shareholders see is known as the 'book income.' The income they use to file taxes is meant to legally avoid as much taxes as possible takes advantage of as many deductions, credits, and loopholes as possible.

This is how we end up with companies like Amazon with sky high stock prices and zero federal income taxes.

President Biden's plan - in a what's-good-for-the-investor-is-good-for-the-tax-man move - creates a tax floor for multinationals that is a minimum of 15% of their book income, the amount they tell their stockholders they made. No matter how many tax breaks are available to the corporations, they will not be able to pay less than that.

The full plan is worth a read, but one can see why the President's corporate tax plan is so popular, especially when it as a specific, wildly popular purpose: making a critical investment in infrastructure. No one is particularly happy with the way large, multinational corporations who benefit immensely from taxpayer investments in America's physical, cyber, and educational infrastructure treat the United States when it's time for invest back (pay their taxes). No one is happy with how much corporate loopholes Congress has provided over decades, and no one cares for the way every time Democratic presidents have public investments a thing, their Republican successors have seen it fit to roll it all back.

Also, the talking point Republicans used to be able to pull out to scare people - "they'll raise your taxes!" - has become stale. Not only have people realized that Democrats will not target middle class and lower-income Americans with tax increases, investment in communities and infrastructure through taxes have become popular. So popular that, in fact, Americans are increasingly voting for higher taxes to provide community infrastructure and resources at the ballot box.

Tax increases - done right and with a purpose - are finally popular. And there is nothing the right can do about it.

Like what you read? Leave a Tip. 

💰 Fund the Fight