The tax burden on business investment under Joe Biden’s tax proposals | American Enterprise Institute

Key Points

  • Former Vice President and Democratic presidential candidate Joe Biden has proposed several tax increases that focus on raising taxes on business and capital income.
  • Taxing business and capital income can affect saving and investment decisions by reducing the return to these activities and distorting the allocation across different assets, forms of financing, and business forms.
  • Under current law, the weighted average marginal effective tax rate (METR) on business assets is 19.6 percent, but it varies significantly by asset type, business form, industry, and how the asset is financed.
  • Biden’s tax proposals would raise the METR on business investment in the United States by 7.8 percentage points to 27.5 percent in 2021. The effective tax rate would rise on most assets and new investment in all industries.
  • In addition to increasing the overall tax burden on business investment, Biden’s proposals would increase the bias in favor of debt-financed and
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