It’s been just over three and a half years since President Trump signed the Tax Cuts and Jobs Act of 2017, but one signature part of the bill is now in serious jeopardy.
The federal corporate tax rate – which the Trump administration dropped from 35% to 21% – could jump to 28% if the Biden administration gets its way.
The raise, coupled together with an average of state corporate tax rates, would result in a 32.4% combined top corporate tax rate – highest in the industrialized world, according to Tax Foundation. This would include every country in the Organization for Economic Cooperation and Development, the G7, and all major trade partners and competitors, including China.
Now, experts are warning that there could be some unintended consequences of the proposed tax hikes: higher utility bills.
"Biden says he is only going to tax the rich and corporations. But when he raises the corporate income tax, he forces increases in your utility bills. It passes straight through to your water bill, your electric bill, [and] your gas bill," warned Grover Norquist, the founder and president of Americans for Tax Reform, in an interview with FOX Business’ Edward Lawrence.
"It is a dollar for dollar increase, because every dollar of the federal corporate income tax that goes to utilities is, by law, passed directly on to consumers. So if he's raising a billion, you're paying a billion. It is a significant increase for all middle-income Americans," continued Norquist, author of the famed Taxpayer Protection Pledge.
|NEE||NEXTERA ENERGY INC.||59.70||-0.15||-0.25%|
|DUK||DUKE ENERGY CORP.||94.39||-0.08||-0.08%|
|D||DOMINION ENERGY INC.||47.49||+0.25||+0.53%|
After the Trump tax cuts, some utilities were able to pass on the tax savings in the form of lower utility bills. Experts such as Norquist insist that these savings are instrumental in the equation of enhancing the average American’s income; he worries about a potential change in the status quo.
"Studies show that when you reduce the corporate income tax, 50 to 70% of that goes directly into higher wages because people become more productive [as] you have more capital per person. So cutting the corporate rate raises wages," the former Ronald Reagan confidante said.
Additionally, Norquist pointed out that income was already going up after the Republican-led bill’s passage.
"We saw in 2019 the median income in the United States went up by $4,400, [a] 6.8% [increase] in one year. Why? Because the corporate income tax got more capital, more investment, more machinery, more computers per person, making them more effective and efficient and productive."
The White House has been insistent on raising the rate, with White House press secretary Jen Psaki in April claiming "none of that happened" in regards to benefits of Trump’s bill.
President Biden also chimed in on the issue in a visit to Louisiana in May when touting his infrastructure bill.
"Look, this is all about making a choice – a choice between giving tax breaks to the super wealthy and to corporations, and investing in working families, who are going to build the country," the president said in a speech.
However, experts warn that Biden is misguided when discussing it as a choice and raising the rate would effectively serve as a regressive tax hike that would disproportionately harm families who need the money the most.
"President Joe Biden has pledged to not raise taxes on households earning less than $400,000 annually. Yet the higher utility bills that an increased federal corporate rate would yield represent but one of many Biden tax proposals that would raise costs for households making well below $400,000 annually," said Patrick Gleason, vice president of state affairs at Americans for Tax Reform, in January.
Others say that not only will lower-income households suffer, but so will small businesses, which use a lot of energy and need to balance surging costs in commodities and production just to stay in business.
"Think of small businesses, which use a great deal of energy. They get hit as well. And then you pay when you go to the store," Norquist said.
"[Biden] is making it more expensive to live in America. When the corporate income tax goes up, small businesses, which use a great deal of energy, will raise prices and have to hire fewer people, they just won't have the resources," the tax reduction advocate stated.