How Would U.S. Tax Increases Affect Your Business?

As Connecting the Dots reported last week, the White House and Democrats in Congress are still trying to find a path forward to approve the Build Back Better (BBB) plan — legislation that would expand so-called “human infrastructure” spending programs like childcare and housing. The bill also includes billions of dollars in tax hikes to pay for the new spending, which would have an outsized impact on smaller companies.

MSCI’s partners at the National Association of Manufacturers (NAM) are taking this threat seriously. The organization has launched a large-scale print, radio, and digital ad campaign asking Congress to oppose new taxes on manufacturers. View the ads here and read the more about the ads here.

The NAM also has published research outlining the negative impact higher taxes would have on manufacturing. The study examined what would happen if the following changes were made to the tax code:

• The corporate tax rate is increased from its current level of 21 percent to 28 percent;
• The corporate alternative minimum tax is reinstated;
• Expensing (100 percent bonus depreciation) of most investments in depreciable assets is eliminated immediately rather than being phased out over 2023–2027 and is replaced with the modified accelerated cost recovery system;
• The 20 percent deduction for certain pass-through business income is repealed immediately, rather than expiring after 2025;
• Capital gains and dividends are taxed at the same rate as ordinary income for taxpayers with incomes above $1 million, and unrealized capital gains are taxed at death; and
• The top individual tax rate is increased immediately from its current level of 37 percent to 39.6 percent, rather than expiring after 2025.

The NAM found:

• Total employment, measured by hours worked, would fall by 0.7 percent initially before moderating. The reduction in hours worked would be equivalent to an employment decline of approximately one million full-time jobs in 2023.
• The average annual reduction in employment would be equivalent to a loss of 600,000 jobs each year over 10 years.
• By 2023, gross domestic product would be down by $117 billion, by $190 billion in 2026, and by $119 billion in 2031.
• Ordinary capital, or investments in equipment and structures, would be $80 billion less in 2023 and $83 billion and $66 billion less in 2026 and 2031, respectively.
• Investments in intangibles, or “firm-specific capital” would fall 2.7 percent by year two and would be down a total of 3.8 percent by year five.
• Real wages would fall by 0.6 percent in the long run and total labor compensation, including wages and benefits, would decline by 0.6 percent initially before falling by 0.3 percent after 10 years. In the long run, total compensation would also decline by 0.6 percent.