“We don’t impose any burden on taxpayers,” Manchin said on CNN’s “State of the Union.”
“Joe Biden and the Democrats want to raise taxes during a recession,” Republican National Committee Chair Ronna McDaniel said in a July 28 statement.
According to the RNC, “Biden’s tax hikes break his promise not to raise taxes on Americans earning less than $400,000.”
In a speech on the bill on July 28, Biden said the bill was intended to “ensure that America’s biggest corporations pay their fair share,” and he insisted, “This bill does not will not raise taxes on anyone earning less than $400,000 a year…a promise I made during the campaign and one…that I kept.
Senate Majority Leader Chuck Schumer echoed those sentiments in remarks from the Senate floor the same day.
“Republicans keep saying this is a tax on the American people: no, Republicans. You’re trying to hide the truth,” Schumer said. “The truth is that this bill will close tax loopholes exploited by America’s wealthiest and biggest corporations and will not affect Americans who earn less than $400,000 a year.”
Does it raise taxes?
Let’s start with Manchin and Schumer’s claims that the bill would not raise taxes and would simply close tax loopholes.
The bill would impose a minimum corporate tax of 15% on companies reporting profits over $1 billion. Although the current statutory corporate tax rate is 21%, Senate Democrats say some 200 or more large corporations are paying less than 15% due to various tax incentives. This minimum tax should bring in about $315 billion over 10 years.
Whether it’s a tax increase or just “fixing a tax loophole” may be a matter of semantics, but two experts we interviewed said it was a tax increase. Corporations subject to this tax will pay more income tax to the federal government than they otherwise would without the invoice.
“It’s a tax hike,” Will McBride, vice president of federal tax and economic policy at the Tax Foundation, told us in a phone interview. “That’s how the office of non-partisan markers, the Joint Committee on Taxation, sees it. They call it a tax hike, and we call it a tax hike.
The definition of a loophole is somewhat “in the eye of the beholder”, and often amounts to a political term for a tax provision you don’t like, Steven Rosenthal, senior fellow at the Tax Policy Center, told us in a phone interview.
Rosenthal said he views a tax loophole as a company finding a way to avoid taxes in a way that Congress had no intention of doing. But overall, companies are paying below the statutory corporate tax rate because they take advantage of various tax incentives, like bonus depreciation, that Congress passed to encourage investment and stimulate the economy.
“A lot of code layouts are there by design,” Rosenthal said. “Congress expects companies to take advantage of these provisions. I would have a hard time calling them loopholes.
And so, Rosenthal said, contrary to what Manchin and Schumer claim about the bill, “Yes, it raises taxes. It’s more than just closing loopholes.
Biden’s tax pledge
But Rosenthal also disagrees with Republican claims that the bill violates Biden’s pledge not to raise taxes on people earning less than $400,000. “I think that’s also wrong,” he told us.
When Biden was campaigning in 2020 on the pledge, he also repeatedly promised to make sure corporations “pay their fair share.”
“Everyone knew what Biden meant when he made that promise during the campaign,” Rosenthal said.
Republicans point to an analysis of the bill by a joint committee on taxation, which indicates that federal taxes for people earning less than $200,000 would increase by $16.6 billion in 2023, and that those taxpayers would bear a little more than 42% of the tax increases in the bill that year. It is a function of estimating the effect on individuals of levying the minimum corporate tax. Corporations pass on some of the burden of higher taxes in the form of lower wages and lower stock market values, affecting shareholders.
In 2013, the nonpartisan Joint Committee on Taxation began including the distributional effects of business taxes on individuals.
“The new methods adopted by the staff of the Joint Commission to apportion taxes on corporations and flow-through entity income taxes reflect the understand in the economic profession that national individuals ultimately hold the majority the weight of these taxes,” the JCT wrote. “Given the general economic consensus that such taxes should be distributed to individuals, Joint Committee staff believe that the estimated distribution is appropriate.”
In other words, as then-presidential candidate Mitt Romney once said, “Businesses are people, my friend.” Or, as McBride told us, “Some humans pay that tax.”
For its modeling, JCT assumes that in the long run, 75% of corporate taxes fall on the owners of the capital of these companies, which means that tax increases reduce the value of shares, for example, and that shareholders suffer from it. The JCT also assumes that workers bear about 25% of the long-term corporate tax burden, mostly in the form of lower wages or other compensation.
Since even middle- and low-income workers own stocks through IRAs and 401(k)s, McBride said, the burden of corporate tax hikes is felt “across the income spectrum. “. In addition, in the longer term, workers also bear some of the burden of corporate tax hikes via lower wages, he said.
Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget, told us that while there is a slight increase for middle-income earners in year one, by year three of the proposed law, JCT’s modeling shows the percentage increases are almost negligible.
In addition, Goldwein said, JCT’s distribution charts do not include the benefits of individual energy tax credits, savings from prescription drug provisions, health care subsidies, and a reduction. inflation over time. If they did, he said, the bill’s net impact would be closer to zero for middle-income Americans in the early years and, over time, would result in a net tax benefit. for middle income people.
So while some people would be worse off economically if the bill passed, Goldwein said, “all income classes as a whole benefit from the bill.”
The JCT’s analysis of the bill’s overall impact shows it would bring in about $68 billion over 10 years. But most of that comes from the early years. Indeed, by 2027, the bill would amount to a net tax cut for individuals each year, according to the JCT.
As for the bill’s elimination of the carried interest tax benefit that allows investment fund managers to pay a lower tax rate than income tax, the $15 billion of revenue it should generate is a relatively small part of the whole. And the bill specifically limits interest charged to those earning more than $400,000.
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