New analysis from the nonpartisan Joint Committee on Taxation (JCT) indicates that increasing the statutory corporate tax rate would raise taxes for tens of millions of taxpayers making under $100,000 per year, and tens of millions more making under $400,000 per year -- violating, at minimum, the spirit of President Biden’s pledge not to raise taxes on households bringing in less than $400,000 per year.
Just how much would a corporate rate increase from 21 percent to 28 percent -- as proposed by President Biden and supported by many Congressional Democrats -- raise taxes on five-figure households? We cannot directly mimic the work of JCT, but some extrapolation based on our results indicates that the 33-percent rate hike could raise taxes on households making less than $100,000 per year by almost $100 billion from 2022-2031.
JCT estimates that, overall, the seven percentage point corporate rate hike will raise revenues by $701.4 billion over 10 years. The rate hike raises $50.7 billion in fiscal year (FY) 2022, escalating just about every year until it raises $77.7 billion in FY 2031:
Item | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2022-31 |
Increase corporate rate to 28% (billions of dollars) | 50.7 | 64.7 | 65.7 | 67.2 | 69 | 74.3 | 77.2 | 77.6 | 77.3 | 77.7 | 701.4 |
JCT doesn’t break out the distributional effects (by income) of the corporate rate hike for each year in the 10-year window, but it does break out distributional effects for the first year (FY 2022) and the last year (FY 2031). In the first year, taxpayers making less than $100,000 per year bear 10.6 percent of the rate hike.[1] In the last year, taxpayers making less than $100,000 per year bear 16.1 percent of the rate hike.
JCT explains:
Our incidence assumption, consistent with much of the economics literature, is that in the very short run, 2022 in this case, the incidence of the corporate tax is borne entirely by owners of capital. It is only in the longer run that our incidence assumption assigns some of the burden of the corporate tax to those taxpayers who earn labor income in addition to owners of capital.
While JCT does not comment on whether the increasing share of corporate taxes borne by workers progresses in a linear fashion, assuming the increase is linear, from 10.6 percent in 2022 to 16.1 percent in 2031, would make the 10-year tax hike on taxpayers making less than $100,000 about $95 billion:
Item | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2022-31 |
Increase corporate rate to 28% (billions of dollars) | 50.7 | 64.7 | 65.7 | 67.2 | 69 | 74.3 | 77.2 | 77.6 | 77.3 | 77.7 | 701.4 |
Incidence on taxpayers making less than $100K | 10.6% | 11.2% | 11.8% | 12.4% | 13.0% | 13.7% | 14.3% | 14.9% | 15.5% | 16.1% | N/A |
Increase corporate rate to 28% - impact on less than $100K (billions of dollars) | 5.4 | 7.3 | 7.8 | 8.3 | 9.0 | 10.1 | 11.0 | 11.5 | 12.0 | 12.5 | 94.9 |
Of course, the incidence is even larger on taxpayers making less than $500,000 per year.[2] Using the same methodology as above, taxpayers making less than $500,000 bear 57.2 percent of the cost of the corporate rate hike in 2022 and 66.3 percent of the cost in 2031, for a total of $435.1 billion over the ten-year period:
Item | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2022-31 |
Increase corporate rate to 28% (billions of dollars) | 50.7 | 64.7 | 65.7 | 67.2 | 69 | 74.3 | 77.2 | 77.6 | 77.3 | 77.7 | 701.4 |
Incidence on taxpayers making less than $500K | 57.2% | 58.2% | 59.2% | 60.2% | 61.2% | 62.2% | 63.3% | 64.3% | 65.3% | 66.3% | N/A |
Increase corporate rate to 28% - impact on less than $500K (billions of dollars) | 29.0 | 37.6 | 38.9 | 40.4 | 42.2 | 46.2 | 48.9 | 49.9 | 50.5 | 51.5 | 435.1 |
The JCT report makes abundantly clear that a corporate rate hike will not just be borne by wealthy shareholders of major corporations, but by workers and shareholders making less than six figures per year too. Of course, NTU conducted this analysis using JCT’s assumption that workers bear only 25 percent of the corporate tax rate. Experts at the Tax Foundation estimate that workers may bear closer to 50 percent or 70 percent of the corporate tax rate. This is one of several reasons why raising the corporate rate would be bad for workers, businesses, and taxpayers around the country.
NOTE: This piece was updated on September 1, 2021 to reflect slightly updated calculations in the second table.
[1] The distributional effects are measured by calendar year while the revenue effects are measured by fiscal year, so extrapolating the distributional effects year to year does not lead to perfect apples-to-apples comparisons. Nonetheless, we believe the extrapolation is illustrative of the kinds of impacts low- and middle-income taxpayers could bear from a corporate rate hike.
[2] Though Biden’s pledge covers taxpayers making less than $400,000 per year, JCT did not model the distributional effects of a corporate tax rate hike on taxpayers specifically making less than $400,000 per year; just $500,000 per year.