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May 9, 2022

Studies Indicate Raising Business Taxes Would Harm Consumers, Make United States Less Competitive

The U.S. Senate and House are about to begin meetings to put the final touches on legislation that is meant to improve U.S. businesses’ competitiveness with their counterparts in China.

At the same time, federal lawmakers also continue to say they want to consider President Joe Biden’s Build Back Better plan, which would raise taxes on American companies. According to the nonpartisan, nonprofit Tax Foundation, raising these levies would make U.S. businesses less competitive against their Chinese counterparts.

Specifically, the Foundation found:

  • The marginal effective tax rate (METR) in the United States under current law is 18.3 percent, compared to 4.8 percent in China. These numbers indicate the United States places a higher burden on marginal investment than China.
  • If the United States had maintained its current 100 percent bonus depreciation, immediate expensing of research and development, and other policies that were in place in 2021, its METR would be 11.2 percent, higher than China’s METR of 4.8 percent. Because of scheduled policy changes in the United States however, tax treatment of domestic investment will worsen in the next several years.
  • Under President Biden’s proposal, which proposes raising the federal corporate income tax rate to 28 percent, the combined tax rate in the United States would reach 32.3 percent—higher than that of China and the OECD average excluding the United States.

The Foundation concluded that U.S. lawmakers should “consider how the tax system treats capital investment” and research and development expenses before considering other pieces of legislation.

In related news: a study released recently by the National Bureau of Economic Research found tax increases on businesses “provides evidence that corporate taxes impact retail product prices, and that a significant portion of corporate tax incidence falls on consumers.” Read more here.

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