Washington’s move away from hike our nation’s corporate tax rate is a welcome development for troubled employers of all sizes across America – especially the 1.4 million small businesses that have faced the prospect of higher rates. Given legitimate concerns about what such a proposal would mean for businesses’ ability to recover, any funding mechanism for key priorities of the Build Back Better plan must reflect the reality that a higher business rate at the worst time would be the wrong approach.
Indeed, the consequences of a corporate rate hike – which, according to a number of analyzes on the subject, include “massive job losses,” lower wages, higher retail prices, negative impact on US corporate investment and the return of inversions – would only exacerbate the economic turmoil COVID, rising inflationary pressures, and supply chain disruptions. For example, in my home state of Arkansas, a higher corporate rate would mean higher tax charges for 7,335 companies with fewer than 500 employees, not to mention the impact on larger employers in my state.
Such acute impacts are not only unacceptable, they are the by-product of an advance that is utterly incompatible with a global context in which “nine of the largest and most advanced economies” [have] have lowered their corporate tax rates in recent years. American companies now already pay a combined corporate tax rate, including state and local taxes, of more than 25 percent. In contrast, the average corporate tax rate in Europe was 19.99 percent last year, and the OECD countries pay an average rate of 23.4 percent. Any hike in the U.S. tax rate would put us even further behind global competitors, including China, whose tax cap for certain industries the country targets is dropping to just 10 and 15 percent to bolster China’s dominance in the supply chain. As the budget process progresses, it is vital for lawmakers to keep an eye on this landscape and ensure that any funding mechanism keeps America competitive in the world market.
Here at home, the American people are realizing the harm of a rate hike as our nation recovers from historic economic and health crises. In fact, according to a recent poll, Americans are overwhelmingly opposed to tax increases, 80-20, “as the US is getting out of the coronavirus pandemic and the economic problems it has caused.” Opponents include Greg Hertz of Polson, Montana, a state legislature who has been in the grocery business for decades. As Greg warns, “The corporate tax hike just isn’t affecting large multinationals, it is small business owners like me.” Local companies like Jojo’s Jerky “may not make it” if “Washington increases our taxes,” adds Hans Hippert from Las Vegas, Nevada. And “staying competitive by keeping taxes down,” helps companies like Bushtex, based in Gilbert, Ariz., “Keep growing, creating jobs and raising wages,” said President and CEO Adelaida Severson.
These stories, just a few of many shared with the RATE coalition in recent weeks, underscore why the OECD has long viewed corporate taxes as “the most detrimental type of tax on economic growth.” Also worth mentioning are the economic benefits gained from lowering corporate tax rates in 2017. Achieving a globally competitive corporate tax rate contributed to a climate in which our country’s unemployment rate remained consistently below 4 percent, the economy created more than 100,000 private sector jobs each month, and nominal wage growth was at or above 3 percent for nearly two years in a row, and actual GDP by the end of 2019 was roughly $ 300 billion above the CBO’s 2017 forecast. Median household income rose in the first two years after the corporate tax rate cut by $ 4,900, while “the prosperity of the the bottom 50 percent of households rose “. three times as fast as the top 1 percent. ”In addition, Treasury Department data recently showed that“ despite the economic downturn, tax revenues soared … up 18 percent, or $ 626 billion, last year ”. Corporate payments “led the way, up 75 percent to $ 372 billion and slightly outperformed their previous levels” prior to the aforementioned rate cut.
It is therefore encouraging to see policy makers turning their focus away from a tax rate that is responsible for producing such meaningful statistics; from blackmailing those who have been hit hardest to making sure those who can afford to pay more pay more too. The lack of a corporate rate hike in the Congress proposal is good news for the prospect of an economic comeback for the US. And as the legislative process advances, this critical approach needs to be maintained. The strength and speed of our recovery depends on it. When US companies are doing better, our people are doing better, the communities are doing better, and the economy is doing better.
Blanche Lincoln, a former United States Senator from Arkansas, is the founder of the Lincoln Policy Group and works as an advisor to the RATE Coalition.