After a year of Lockdowns, disease control, and stimulus efforts, there is no question that our economy is moving into uncharted territory that many fear could end disastrously. When we look at the numbers regarding our economy during 2020, our overall GDP tanked 5% in the first quarter of the year making it “the worst contraction since … 2008”. Not to mention, the recent stimulus bills, mainly the 1.9 trillion dollar one, pose a possible threat to inflation.
Considering these factors, it is clear that our economy is suffering from the backlash of battling Covid-19 for more than a year now. However, the policies and actions taken by the Biden administration would not convince you that this is the case.
First, the Biden tax plan does not reflect the goal of trying to stimulate the growth of companies and rebuild markets that have diminished during the Covid pandemic.
Instead, it imposes a 28% corporate tax, a 7% increase from the former 21% tax, which has raised strong doubts regarding the future of the economy. Worse yet, instead of trying to create a tax situation that is favorable toward businesses to attract them back to the United States from abroad, Biden has chosen to enact “tougher anti-inversion rules and stronger penalties” to try and dissuade American companies from merging with foreign ones in order to avoid taking on a heavy tax burden.
The consequences of the above strategy are huge. First off, The Biden Administrations’s decision to adopt a draconian policy like tougher anti-inversion rules is clearly not going to be well received by the business world. If anything, companies may want to participate in a corporate inversion even more after being met with such a blunt force method, and companies that already have left certainly won’t want to make an attempt to come back.
Regarding the corporate tax increase, this is also likely going to be heavily opposed by almost all corporations it effects. Funny enough, the Biden team certainly knows this as Commerce Secretary Gina Raimondo stated “ “What we cannot do, and what I’m imploring the business community not to do, is to say, ‘We don’t like 28. We’re walking away”. They claim this tax is necessary because “If…[tax revenues] continue to drop lower, we will have less money to invest in roads, bridges, broadband and R&D,” which in my opinion is a lame excuse since these things shouldn’t be our main focus right now. So the question remains, what should we actually be doing?
The short answer is that we need to put a hold on raising the corporate tax and at least wait for the 4th of July return to normal goal set by President Biden. Allowing corporations that rely on the lifting of Covid policies at least this much would help them get back on their feet. If we don’t, we risk seeing a similar scenario to around 5 years ago when multiple different companies were making moves to outsource labor abroad but ultimately did not.
For example, in 2016 “Ford announced that the automaker’s small-car production would exit the U.S. for Mexico” in favor of lower production costs. Furthermore, Sprint, which is largely owned by Japanese shareholders, was having doubts about where its future would be based.
What brought these companies back to the United States wasn’t increased taxes and other blunt policies, but former President Trump’s use of tariffs and other trade mechanisms to make the United States the most favorable place for companies to base their production facilities. In the case of Ford, “the expense of import tariffs that the Trump administration implemented” was the reason they decided to move the production of the Ford Focus back to the United States from China.
This success reflects why the use of tariffs should be implemented as a means of helping the United States economy grow in the long term, while the lowering of taxes allows the economy to get back on its feet in the meantime. Doing so will allow the United States to retain its competitive edge and thus create future opportunities for growth. Regardless, we can only hope that our economy recovers as we struggle through these trying times.
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