Tax season is again upon us, and in a few short weeks hundreds of millions of Americans will file their returns. There has been a growing movement in the country to drastically increase the tax burden placed on the nation’s highest earners, reflected by President Joe Biden’s championing of increased income tax rates for wealthy Americans and vow to make the rich pay “their fair share.”
READ MORE: Social Justice? It’s Called Capitalism.
Apart from the ultra-wealthy, corporations are often the taxpayer class that draws the most attention from the president. Last week, Biden sent Congress his 2025 budget proposal, including a hike of the corporate tax rate to 28 percent, which would give the U.S. one of the highest rates among developed nations. The president has remained consistent on this issue since taking office. In 2021, he announced that, under his administration, “corporations will finally pay their fair share,” and posted on X: “A teacher shouldn’t pay a higher tax rate than a profitable company. It’s time we reward work in this country—not just wealth.”
Such an incoherent statement represents a fundamental misunderstanding of corporate tax policy. It is nonsensical to contrast the individual income taxes of certain professionals to those of a corporation. Such a comparison implies that corporations are the ultimate earner and the ultimate taxpayer, a patently false and grossly deceptive assertion. It is the shareholders of the corporation that will reap any profits generated by the company and are, therefore, the party directly harmed by corporate tax hikes.
So, who owns shares of these companies? Based on the rhetoric of Biden and his allies, a reasonable conclusion would be that most stockholders in America are wealthy, high-income Wall Street types. In reality, most stockholders are average, working-class Americans. In 2023, over 60 percent of Americans reported owning stock.
Teacher pension funds, for example, are major investors in corporate stocks, as are teachers individually, often through 403(b) retirement plans. This means, of course, that when he raised the corporate tax rate through his controversial Inflation Reduction Act, Biden ironically increased the tax burden on teachers, the very group he erroneously argued “shouldn’t have to pay a higher tax rate than a profitable company.” And it’s not just teachers who rely on stock investments for retirement savings; the majority of 401(k) and IRA balances are invested in the market. When the corporate tax rate goes up, the income of working-class families and retirees, in effect, goes down.
It’s also critical to note that increasing corporate tax rates not only negatively impacts the stockholders of those corporations but also has far reaching adverse economic effects. By limiting the profit of certain companies through taxation, the government is decreasing the capital available to those businesses for investment and expansion. That investment may have resulted in higher salaries, new technological innovations, or better products. So, by depriving companies of the resources to make those investments, the government is lowering overall economic output and productivity.
On the matter of corporate tax policy, Biden’s rhetoric does not match reality.
Kyle Reynolds is a master’s student at St. John’s College where he studies politics and society and serves on the editorial board of the school’s journal. His essays have been published by the Foundation for Economic Education, the Mises Institute, and the Heritage Foundation.
