In a speech on the economy last week, Federal Reserve Board Chairman Jay Powell said it was not yet clear how the Delta option will affect the economy. He said the “Covid pandemic is still casting a shadow over economic activity”. Also last week, the government announced that retail sales were down 1.1%, a worrying sign of our economic recovery.
It is for this reason that I am so concerned about the economic impact of a corporate tax hike on American companies and workers while our recovery is so fragile. That’s because studies show that a higher corporate tax rate translates into higher prices, lower wages, lower retirement savings, fewer jobs, and a slower economy.
Studies have shown that increasing the corporate tax rate leads to higher prices as the increased costs are passed on to consumers. This means even higher food, utility and retail prices.
Studies have also shown that workers bear up to 70% of the burden of a corporate tax hike in the form of lower wages and incomes.
A new analysis by the impartial Joint Taxation Committee of Congress shows that an increase in the corporate tax rate would hit 172 million taxpayers. More than two-thirds (66.3%) of the corporate tax hike burden would be borne by taxpayers earning less than $ 500,000.
A corporate tax hike would hit small businesses too, not just large corporations. A study by the US Chamber of Commerce found that the proposed increase in the corporate tax rate would hit 1.4 million small businesses across the country.
Finally, I have serious concerns about raising the corporate tax rate to a level much higher than our global competitors like China. US companies already pay a combined average federal and state tax rate of 25.8%, which is higher than the average OECD tax rate of 23.4%. Increasing our corporate tax rate would put US companies at a competitive disadvantage, which would harm US workers and our economy.
Even a 25% tax rate, resulting in a combined average rate of 29.5%, would force US companies to pay a higher tax rate than most of our global competitors. Thirty European countries would have a lower tax rate. Even China with a nominal tax rate of 25% would have a lower tax rate.
In my home state of Arkansas, 10,612 companies, including 7,335 small businesses, would pay a combined corporate tax rate of 29.7%, one of the highest in the world.
With the pandemic casting a shadow over our economy, now is not the time to raise the corporate tax rate. The rise in corporate taxes will harm working families and small businesses, and put American businesses at a global competitive disadvantage. Instead, let’s focus on getting this pandemic under control and sustaining our economic recovery.
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.