US President Joe Biden is considering an increase in the corporate income tax rate, as one of the tax proposals to offset the cost of the upcoming long-term investment plans, Treasury Secretary Janet Yellen said on Tuesday.
"I think a package that consists of investment in people, investments in infrastructure, will help to create the jobs in the American economy and changes to the tax structure will help to pay for those programs," Yellen said at a hearing before the House Financial Services Committee.
The treasury secretary noted that the US$1.9-trillion COVID-19 relief package recently rolled out has been deficit-funded. "The stimulus package, the American Rescue Plan was not funded with any increase in taxes," she said, adding that a longer-term plan probably would be accompanied with some revenue increases.
The current crisis is due to the pandemic, Yellen said. "But, once the economy is strong again, we are beyond the pandemic, President Biden is likely to propose that we engage in long-term plans to address long-standing investment shortfalls in our economy."
She noted that investments in infrastructure, climate change, people, research and development, as well as manufacturing will make US economy more productive.
"This will be spending over a 10-year horizon and would require some additional funding," she told lawmakers.
One of the tax proposals Biden would consider is to increase corporate income tax rate back to 28 percent, Yellen said, noting that the current US corporate income tax is among the lowest in developed countries.
An increase in corporate income tax, if enacted, would mark a reversal of policy from the Donald Trump administration. In late 2017, the Republican-controlled Congress passed a President Trump-advocated tax reform bill, which slashed the corporate income tax from 35 percent to 21 percent.
At the congressional hearing, some Republican lawmakers, including Representative Ann Wagner from Missouri, cautioned against raising taxes.
"We know that raising the corporate tax rates results in higher costs for small businesses, schools and American households," Wagner said.
"Why is this country beginning to reopen and recover economically with the Biden administration preparing tax policy which would in the end hurt the American family and millions of struggling small businesses?" she continued.
Yellen, however, told lawmakers that the impact of the changes in corporate taxes have been studied for a long time, and the impact on prices and on consumers are "very unclear" from existing studies.