Jan 15, 2022 3 min read

As the omicron variant continues to spread across the country, the economic toll of the coronavirus pandemic cannot be understated. Pennsylvania’s families, businesses, and communities have all been affected, resulting in an estimated 30% of the state’s Main Street businesses closing their doors permanently.

However, despite these closings, the Biden Administration is proposing to utilize corporate tax increases to fund additional spending on domestic programs. The timing of this proposal would only exacerbate the economic challenges that businesses and workers are currently confronting. At a time when businesses are struggling to rebound, the prospect of higher taxes should be met with scrutiny, as they would impact not only corporations, but also small businesses who compromise most of our local employers.

One of the more troubling items under consideration is a lesser-known provision that would increase the Global Intangible Low Tax Income (GILTI) rate, which if raised, would have wide-ranging effects for many American businesses that have operations abroad or are part of foreign supply chains and markets.

GILTI is a fee levied upon the foreign earnings of American companies and is currently the only such fee in the world – no other country taxes the profits made abroad by domestic companies. However, 136 countries belonging to the Organization for Economic Cooperation and Development have agreed in principle to enact their own version of GILTI through a global minimum tax. It would be enacted in 2024 but we will not know until then if they follow through with its implementation.

Therefore, it does not make sense to increase GILTI before other countries have even established their own version of such a tax. The current GILTI framework already places constraints upon American competitiveness, and if increased further, would reintroduce incentives for U.S. companies to look for ways to shift profits elsewhere, rather than report them domestically.

It should be noted that a study by the National Association of Manufacturers has shown that when investment and employment increase globally by American companies, so too does domestic investment and employment. Additionally, if U.S. businesses are priced out of foreign markets due to an increased tax burden, they risk losing those markets and the earnings they bring home. The same study finds that if GILTI is increased the U.S. could lose up to one million jobs and $20 billion in economic activity within one year. Over the long-term, domestic employment by American companies could decrease by 10.9%. Small businesses would be disproportionately impacted by GILTI as they cannot take advantage of the same credits and deductions afforded larger firms. Small business will likely end up paying more in taxes. Large or small-these job creators would be negatively impacted by these tax increases.

Pennsylvanians have been through a lot over the past two years, and our elected officials should be doing all they can to help our state’s recovery. Increasing GILTI and other corporate income taxes will only add more obstacles to our businesses, and the costs will ultimately be placed on workers and consumers. We cannot allow shortsighted policy decisions to affect our long-term recovery and growth.

Jeff Kotula is president of the Washington County Chamber of Commerce.