Biden’s plan to bring American taxes ‘in line with’ developed peers would in fact make U.S. corporate taxes the highest in the G7.
Biden's plan to bring American taxes 'in line with' developed peers would in fact make U.S. corporate taxes the highest in the G7.
B iden’s corporate-tax proposal is remarkable. Its explicit aspiration is for America not to stand out among its G7 (a group of seven advanced economies) peers. Under the plan, the U.S. would intend neither to gain advantage from tax policy nor have its tax code be a source of competitive disadvantage: The best that can be said is that America would be leading from the middle rather than from behind. If the G7 were a seven-person seminar, America would show up hoping to do no better than two or three classmates.
Even in its modest ambition to be mediocre, however, the Biden administration appears poised to fail. If the U.S. adopted Biden’s proposed federal tax rate, its overall corporate-tax rate would not be “in line” with the rest of the G7. Assuming U.S. state and local corporate taxes stayed the same, Biden’s proposal would result in nearly the highest overall corporate-tax rate in the G7, according to data from the OECD. The U.S. would be tied with France. In fact, as the chart above shows, factoring in state and local taxes, the U.S. corporate-tax rate is much closer to the G7 overall corporate-tax average today than it would be if the proposal Joe Biden campaigned on were adopted. The chart shows the corporate-tax rates among individual G7 members for the last full year (2019) for which data are available from the OECD. The national rates are solid bars, and the sub-national rates are faded bars. The labels on the chart show the overall country-level rate that combines the two.
The chart also shows 2016’s average for the G7, because 28 percent was the average of corporate-tax rates among other members of the G7 in 2016, the last full year Joe Biden was Vice President. If Biden’s staff in the Office of the Vice President calculated 28 percent as the average and therefore the rate that brings the U.S. “in line with other countries” without factoring in state and local taxes, you’d expect Biden to have campaigned on the 28 percent corporate-tax rate. And so, it seems, he did. Unfortunately for Biden, America’s G7 competitors have not stood still. The average overall corporate rate among the G7 has fallen to 25 percent, as high-tax nations strive to be more like the U.S. With the G7 average trending in one direction, Biden would move the U.S. in the opposite direction.
Biden campaigned on a pledge to raise the corporate-tax rate to 28 percent. And why go to precisely 28 percent, not a little more or a little less? The economists who served in the Obama administration, some of whom are now set to re-staff the White House, say it is intended “to bring it more in line with other countries.” But, as the chart shows, even if this were still the overall corporate-tax rate among the G7 were as in 2016, this is not the rate that Biden’s proposal would achieve. On the contrary, if Biden’s proposal were in fact adopted, the U.S. would be an outlier in the group, hitting level-pegging only with France, a ranking that no country should wish to hold when it comes to tax policy.
As an economist as well as a Joe, I am more a fan of averages than your average Joe. But if Joe wants to use an average to formulate a goal for the public policy of the United States, he should at least update his spreadsheet and use the right measure of average — if mediocrity, embodied as an average, is indeed now the goal. President Joe Biden is no exception.