Wharton Study Says Biden's Corporate Tax Hike Wouldn't Kill Business Investment


President Biden's proposed tax hike to pay for his infrastructure plan would have little effect on business investment.

Biden proposed increasing the tax rate from 21 percent to 28 percent. The Wharton study estimates that the tax hike would create nearly $900 billion from 2022 to 2031 and not have a massive effect on business investment.

The study believes companies with significant capital investments would opt to defer a tax incentive known as bonus depreciation which allows companies to deduct a larger amount of the purchase price from assets.

“Raising the statutory corporate tax rate is expected to increase corporate investment in the near-term,” the Wharton researchers wrote.

“Under the current-law regime of accelerated depreciation, marginal effective tax rates on corporate investment are low regardless of the headline rate. As a result, raising the corporate tax rate does not meaningfully affect the normal return on investment, instead taxing rents and returns from existing capital.”

Furthermore, the study showed that the infrastructure plan would reduce the federal debt by 6.4 percent by 2050.

“Initially, federal debt increases by 1.7 percent by 2031, as new spending in the [American Jobs Plan] outpaces new revenues raised,” the researchers said.

“After the AJP’s new spending ends in 2029, however, its tax increases persist—as a result, federal debt ends up 6.4 percent lower by 2050, relative to the current law baseline.”

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Economics, Finance and Investing