According to an excellent analysis conducted by the Tax Foundation, “Raising the U.S. corporate income tax rate would erode America’s international tax competitiveness, giving us the highest combined corporate tax rate in the OECD. Such a relatively high corporate tax rate would encourage profit shifting abroad and otherwise out of the U.S. corporate sector.”

Furthermore the Tax Foundation states:

President Biden’s proposed tax hike would reduce American economic output during a time when we need to maximize economic growth to reach our country’s pre-pandemic growth trend and return to full employment. We estimate an increase in the corporate tax rate to 28 percent, for example, would reduce long-run economic output by 0.8 percent, eliminate 159,000 jobs, and reduce wages by 0.7 percent. A 25 percent tax rate would reduce output by 0.4 percent and result in about 84,000 fewer full-time equivalent jobs.

A minimum tax on corporate book income would bring with it a shallow understanding of the reasons why corporations face gaps in financial and taxable income, and it would introduce new complexity and distortions into the tax code. Moreover, it would give undue control over the corporate tax base to FASB, an unelected body.

For those concerned about book-tax differences, a more direct path would involve identifying the tax provisions driving book-tax differences, e.g., accelerated depreciation, and weighing the pros and cons of those provisions. Additionally, a more thorough measurement to determine the extent to which earnings management or tax avoidance is driving the gaps would be a valuable contribution to the broader debate over minimum taxation of book income. Policymakers should consider alternative tools to address tax avoidance, such as by improving international tax rules.

We highly recommend you read the full report written by Garrett Watson and William McBride at the Tax Foundation on Evaluating Proposals To Increase The Corporate Tax Rate at this link.

Tax Professionals: We welcome your commentary below.