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The Real Cost of The 28%

Kale Goodman is a serial entrepreneur and has over 18 years of service in the accounting field.

Hey Real Business Owners! I’m sure you’ve already heard of the 28% corporate tax rate Biden has lined up. It comes as no surprise since it was said a lot on his campaign trail. But, the reality of it actually happening is not looking good for Biden.

Multinational corporations and Wall Street are already gearing up to oppose the hike in corporate tax from 21% to 28%. While it still has to go through congress, several republicans have already been vocal about rejecting it. That 28% will pay for Biden’s two trillion-dollar infrastructure plan, and that money isn’t coming from anywhere else.

The increase would happen no sooner than January 2022, delaying the infrastructure plan further and extending the time it would take to pay it back. With the country still trying to piece back its economy from the pandemic (that’s still in full swing), this infrastructure plan will possibly hurt more than help the American People.

Corporate profits will feel the 28% increase the most. Companies like Amazon and others like the Fortune 500 companies will see a 10% reduction in earnings, said accounting analyst Dave Zion of the Zion Research Group. Instead of the 28%, some moderate Democrats are proposing a 25% increase which would be more realistic.

“There’s no magic behind 28%,” James Lucier, a policy analyst with Capital Alpha Partners. “It is not a number that has any significance, it’s just a way to telegraph that the corporate rate needs to be higher.”

Though 28% is still much less than the early 2017 corporate tax rate of 35%, it would be devastating with the current state of the economy. Before Bidens presidency, the imminent threat of some higher tax rate was very real. The economy was noticeably suffering from the pandemic. Businesses had shut down, people lost their jobs, and schools were closed, leading to a weird pandemic lifestyle.

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No one was “prepared.” However, having experienced the pandemic’s pitfalls for a year now, one would think that the people in charge would have found better solutions. Though the white house has been encouraging other ideas on paying for this infrastructure plan, none have presented themselves.

Speaking in terms of multinational companies, the fear there is that U.S. companies won’t compete on a global scale. There is definitely some truth to that, but Biden wants to “bring them home” and have companies focus on here in the U.S.

“President Biden is leading America in a race to the bottom of growth and productivity,” said Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. “This is sabotaging the recovery.

Businesses primarily gaining revenue in the U.S. and manufacturing and selling their goods will most likely be hit the hardest. They were the businesses that suffered the most during the height of the pandemic. It’s possible that with this corporate tax rate increase, they will still suffer the most.

“In theory, this will be bad for them, but everything’s already been bad for them,” said Stefanie Miller, fiscal-policy analyst for FiscalNote Markets. “They were going bankrupt before the pandemic.”

Some believe that corporations (who will be the primary subject of this tax increase) can give a little more and pay that increased tax rate. Others think that businesses will be shut down, and people will lose jobs. A similar argument occurred during the $15 an hour federal wage debate from last month. The difference this time is that it would affect U.S. citizens whose jobs rely on multinational companies. Biden also plans to raise taxes on foreign income.

There are many parts to this tax rate, and the full scale of consequences has not yet surfaced. Though Congress hasn’t approved it, there is a high possibility that some form of an increased corporate tax rate will come about. The exact amount just hasn’t been determined.

© 2021 Kale Goodman

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