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Could raising the corporate tax rate reduce middle-class incomes?

Friday, April 2, 2021
By Austin Tannenbaum
YES

Economists generally agree that raising corporate taxes could modestly reduce incomes in the U.S., including for the middle class.

President Biden’s recent jobs plan would raise the corporate tax rate from 21% to 28% to help fund infrastructure projects. According to the center-right Tax Foundation, this would cause corporate investment to “flow elsewhere,” reducing “dynamic, long-run” incomes by about 1.4% for the middle three income quintiles.

More broadly, the center-left Tax Policy Center estimated that 20% of the corporate income tax burden falls on workers “in proportion to their shares of earnings.” Similarly, the nonpartisan Congressional Budget Office estimated a 25% burden on workers “in proportion to their labor income.”

President Biden’s plan proposes policies that would deter offshoring and capital flight to tax havens to lessen the tax hike’s negative impact on incomes.

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