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Financial Planning > Tax Planning > Tax Reform

Biden Corporate Tax Hikes Would Hit Retirees, Small Businesses: Study

By Melanie Waddell

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What You Need to Know

  • Corporate tax hikes are primarily borne by workers and retirees, Brady and Crapo argue.
  • 1.4 million small-business C corps and the 98% of Americans who earn less than $500,000 would be hit by corporate tax hike, Brady and Crapo said.
  • The tax burden on Americans making less than $500,000 per year will increase over time, JCT said.

President Joe Biden’s proposed corporate tax hikes would disproportionately harm U.S. workers, retirees and small businesses, including 1.4 million small-business C corps and the 98% of Americans who earn less than $500,000, according to new research by the Joint Committee on Taxation.

House Ways and Means top Republican Leader Rep. Kevin Brady, R-Texas, and Senate Finance Committee Ranking Member Sen. Mike Crapo, R-Idaho, released the analysis Monday afternoon.

“This study supports what we’ve long known — corporate tax hikes are primarily borne by workers and retirees, and certainly the middle class/those making well below $400,000 a year,” said Brady and Crapo, who asked JCT to conduct the research.

According to the JCT research, as explained by Brady and Crapo:

  • Within 10 years of a corporate tax increase from 21% to 25%, 66.3% of the corporate tax burden would be borne by taxpayers with income well below $500,000.
  • Of the more than 172 million taxpayers who would bear the burden of the increased corporate tax rate, 98.4%, or about 169 million, have incomes below $500,000.
  • Separate analysis shows that corporate tax increases would hit 1.4 million small businesses organized as C corporations.
  • Of the portion of U.S. corporate ownership (stocks, bonds, pensions, IRAs and other retirement accounts) held by U.S. taxpayers, there are about 107.8 million U.S. taxpayers who have some ownership stake in U.S. corporations.

A recent U.S. Chamber of Commerce report found that while the majority of the more than 30 million small businesses in the U.S. are pass-through entities in which tax obligations are passed to the owners, 1.4 million of them are organized as C corporations and thus subject to the corporate tax.

The tax burden on Americans who make less than $500,000 per year will increase over time, the lawmakers said.

For 2022, a corporate rate increase to 25% would raise revenues from U.S. taxpayers by $27.7 billion, and about 57% of that additional revenue ($15.8 billion) would come from taxpayers earning less than $500,000 per year, the lawmakers said.

In commenting on the JCT findings, Jeff Bush of The Washington Update told ThinkAdvisor Monday in an email that “It’s reasonable to assume, with corporations being mindful of earnings expectations, any sizable corporate tax increases will spread out across a broad section of the economy, including employees, vendors, suppliers and customers. To the extent a corporation absorbs tax increases, it could effect their earnings and shareholder value.”

Bush added: “An increase in corporate expenses, tax increases included, eventually find their way into the broader economy and can present itself as cost inflation. With Inflation concerns already smoldering in the U.S. (increased wages, raw material costs, shipping costs, and unprecedented liquidity, among others), a tax increase could add to those inflationary pressures. “

Melanie Waddell

@Think_MelanieW

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