As Congress discusses the various ways in which vital infrastructure investments can be funded, I hope that my former colleagues will understand the harm that a corporation tax increase would do to job-creating companies and the workers they employ. In fact, a number of recent studies make it clear that it is not only important, but imperative for policy not to raise the competitive corporate tax rate in the US. This is especially important as our country is working to beat a pandemic and is nervously watching the rise in the Delta variant.
Looking back on the COVID-19 crisis, a competitive corporate tax rate led to several economic successes that underscored why it has long been a bipartisan priority. For example, our new tax law has helped achieve numerous significant economic achievements and fostered a climate where our country’s unemployment rate routinely remained below 4%, our economy created more than 100,000 private sector jobs every month, and nominal wage growth or over 3. % growth for nearly two consecutive years, actual GDP was roughly $ 300 billion above the Congressional Budget Office’s forecast for 2017 by the end of 2019, and U.S. companies brought home $ 1.4 trillion in cash.
In addition, median household income rose $ 4,900 in the first two years after the corporate tax rate cut, while “the wealth of the bottom 50 percent of households grew three times faster than that of the top 1 percent.” At the national level, corporate tax rate cuts also resulted in approximately $ 90 billion in reimbursements and benefits for families in all 50 states.
Looking ahead, a number of studies from a number of organizations and institutions paint a completely different picture of what we might expect if Congress returns our country’s corporate rate to the highest in the industrialized world.
- US Chamber of Commerce: “There are 1.4 million small businesses that will be adversely affected by the proposed tax increases. This includes small companies in all branches of the economy. “
- Ernst & Young LLP / National Retail Federation: “An increase in the corporate tax rate will generally increase the cost of capital and reduce new investment in the United States,” resulting in less available capital, lower labor productivity and lower wages. In addition, “a third of the proposed increase would have an impact on labor, resulting in 730,000 fewer jobs and lower wages”.
- National Association of Manufacturers / Rice University: “1 million jobs lost in the first two years.” And by 2023, “GDP would fall by $ 107 billion, by $ 169 billion in 2026, and by $ 89 billion by 2023. Dollars in 2031 ”.
- National Bureau of Economic Research: “A one percentage point increase in the corporate tax rate will increase retail product prices by 0.17 percent.”
- Penn Wharton’s household model: “Overall, GDP will be 0.9 percent lower in 2031 and 0.8 percent lower in 2050.”
- Tax Foundation: “A rise in the state corporate tax rate to 28 percent would raise the US combined tax rate to 32.34 percent, the highest in the OECD and among the Group of Seven (G7) countries, which is detrimental to US economic competitiveness the investment costs in America. “
Such dire predictions support previous studies by bipartisan organizations such as the Joint Tax Committee and the CBO on the settlement of corporate tax costs for workers and consumers. One CBO economist estimated that “domestic workers bear just over 70 percent of the long-term corporate tax burden.” Treasury data also shows that families of lower-income households, on average, bear a greater tax burden through corporate taxes than individual income taxes. The question is not whether increasing corporate rates will harm labor; it’s how badly it harms work.
Accordingly, any funding mechanism to fund urgently needed infrastructure programs must be guided by the knowledge that any increase in our corporate tax after historical crises will have alarming consequences and that the US will lag even further behind global competitors like China. With an average combined corporate tax rate of more than 25%, a number that President Joe Biden proposed would rise to more than 32% due to state and local taxes, companies are already paying a higher tax rate than most global competitors.
The average rate among the Organization for Economic Co-operation and Development countries is 23.4%, and “nine of the largest and most advanced economies in the world have lowered their highest corporate tax rate in the past four years”. There are smarter approaches for policymakers, like the recent IRS assessment that $ 1 trillion in taxes is not collected annually. Congress should reclaim unpaid taxes that are actually owed rather than jeopardizing jobs and the robust economic growth generated by a globally competitive rate.
I am confident that together we will be able to better rebuild our country’s infrastructure without putting additional strain on our country’s economic upturn.
Blanche Lincoln is a Democrat who represented Arkansas in the Senate from 1999 to 2011 and in the House of Representatives from 1993 to 1997. She is the founder and director of the Lincoln Policy Group and an advisor to the RATE Coalition, which works for a globally competitive company. US tax rate