The Biden administration has proposed a comprehensive program that will help fight climate change, create an economy of shared prosperity and reduce the many inequities in our society. It is about things that matter to the average American—child care, access to community college, universal broadband, expanded health care for seniors, etc. It is about changing the policy that the United States is one of only seven nations in the world that does not offer paid parental leave. The key question is “How do we pay for everything?”
Elected officials have been considering an across-the-board increase in the corporate tax rate to raise revenue for the expanded social safety net included in the Build Back Better plan. Instead of passing a unilateral tax increase, which would disproportionately hurt small businesses and sectors that employ people in marginalized communities, Congress should include a minimum corporate tax in the reconciliation package. This approach would raise revenue by ensuring that giant corporations are paying their fair share, without over-burdening struggling small businesses and retailers.
Major corporations in the U.S. can often use loopholes, deductions, and exemptions in the tax code to pay little to no taxes, in part, because they can afford the vast number of lawyers and accountants needed to effectively use every loophole and reduce their tax liability. This is something that small businesses cannot afford to do given their small profit margins, and other sectors, like the retail sector, cannot do because they do not qualify for many deductions. This results in many businesses paying far too much, particularly those who also have to pay tariffs on goods, while large corporations pay as little as possible—and sometimes nothing at all. A corporate tax increase would only worsen this inequity, while a minimum tax would ensure that all companies are paying their fair share.
For example, while a corporate tax rate increase would negatively affect domestic retailers, these businesses wouldn’t be as impacted by a minimum tax because they are already paying much higher than a 15 percent rate. Meanwhile, retailers provide jobs for millions of working-class individuals as well as members of underrepresented communities. Retail jobs are often filled by non-white workers, women, and young people working their first job, in addition to those with only a high school education. These are the Americans who were also hardest-hit by COVID and are the exact people that Democrats have campaigned on representing. Unfortunately, these workers would be at risk of losing their jobs if the corporate tax rate is increased. This is why a minimum tax rate would be a far more effective and equitable approach.
Thankfully, a minimum tax that would ensure companies that report over $1 billion in profits to shareholders pay at least a 15% tax rate on those profits is being considered as part of the Build Back Better plan. This policy would prevent large corporations from getting away with paying zero (or less) in taxes, while also generating $227 billion in revenue that can be invested in child care, clean energy, and infrastructure improvements. This, in turn, benefits American companies who are able to increase their competitiveness.
This would also put the United States in line with much of the international community, specifically with the Group of 20 which is formally endorsing a new global minimum tax of 15 percent to reverse the decades-long decline in tax rates on corporations across the world.
A corporate minimum tax would be a step in the right direction towards achieving a level playing field, especially for industries like the retail sector, which historically pay far more taxes than other types of businesses, and small businesses who run on tight margins. As Democrats continue their work on finalizing the Build Back Better plan, hopefully they will keep workers in mind who rely on these jobs to provide for their families by supporting a minimum corporate tax as opposed to a corporate tax increase.
Parris Glendening served as governor of Maryland from 1995-2003.