Corporate Tax Loopholes Matter More Than a Higher Rate

President Joe Biden wants to pay for his proposed $2.3 trillion infrastructure bill by raising the corporate tax rate to 28% from 21%. But if experience is any guide, companies are unlikely to pay anywhere near the higher rate because they are experts at dancing around the tax code. That’s why Congress’s first priority should be to close the loopholes that allow companies to treat tax rates as an opening bid rather than a firm demand.

Corporate taxes were once a significant source of revenue for the federal government. But as my Bloomberg Opinion colleague Justin Fox showed recently, corporate taxes accounted for just 6% of federal receipts last year, a fraction of individual income and social insurance taxes. “Our tax revenues are already at their lowest levels in generations,” Treasury Secretary Janet Yellen told reporters earlier this month. “By choosing to compete on taxes, we’ve neglected to compete on the skill of our workers and the strength of our infrastructure. It’s a self-defeating competition.”