As Congress discusses ways to strengthen the American economy amid the Delta variant’s rapid rise, I encourage policymakers to fund new investments in a responsible manner. Saddling job-creating businesses of all sizes and the workers they employ with an increase in the corporate income tax rate would undermine, rather than unleash, President Biden’s bold vision to Build Back Better for American families.
A multitude of studies make clear that an increase in the corporate rate carries alarming consequences for American workers, who bear as much as 70 percent of the tax. Former Federal Reserve and IMF economist William Lee even has that figure as high as 85 percent.
Consider the Federal Reserve’s review of the “impact of corporate taxes on employment and income,” which details how “a 1 percent increase in the corporate tax rate would reduce wages by between 0.3 percent and 0.6 percent.” The proposed 28 percent corporate tax rate, therefore, could cost an American household earning $80,000 annually as much as $3,360 a year due to lower wages, while a 25 percent rate could cost this same family almost $2,000 annually.
The Fed’s findings magnify the impact of numerous other worrisome projections regarding the current corporate rate hike proposal. For example, a higher corporate tax rate would lead to the elimination of as many as 1 million American jobs and the imposition of higher taxes on 1.4 million small businesses nationwide, including 7,335 companies with fewer than 500 employees in my home state of Arkansas. American families will also feel the pinch from a higher corporate rate in the form of higher retail prices, and according to a recent Joint Committee on Taxation analysis, generally higher costs of living.
These consequences aren’t merely unacceptable. They are also at odds in a global context where “nine of the largest and most advanced economies [have] reduced their corporate tax” rates over the past four years alone. Further, American companies of all sizes already pay a combined corporate income tax rate of more than 25 percent, a figure that will surpass 32 percent under the current proposal with the added burden of state and local taxes. By contrast, Europe’s average corporate tax rate was 19.99 percent last year, while countries that comprise the OECD pay an average rate of 23.4 percent (excluding the United States). Any increase in the rate would put us even further behind economic competitors around the world, including China, who offers rates as low as 10 and 15 percent to certain industries the country is targeting to bolster its supply chain dominance.
The meaningful economic benefits generated by 2017’s corporate rate reduction quickly demonstrated why a globally competitive rate had long been a priority among policymakers of both political parties. The new tax code helped foster a climate in which America’s unemployment rate remained below 4 percent on a routine basis, our economy created more than 100,000 private sector jobs each month, nominal wage growth was at or above 3 percent growth for almost two consecutive years, and actual GDP was roughly $300 billion higher than the Congressional Budget Office’s 2017 projection by the end of 2019. As it relates to workers, median household income increased by $4,900 in the first two years following the corporate rate reduction, while “wealth for the bottom 50 percent of households advanced three times as fast as for the top 1 percent.”
Funding mechanisms to pay for critical domestic investments should be guided by the knowledge that an increase in our corporate rate would have a significant impact on American workers and their families. Smarter, more efficient, and less harmful approaches exist for policymakers, such as the IRS’s recent assessment that $1 trillion in taxes goes uncollected annually.
I encourage my former colleagues in Congress to work together to recover unpaid taxes that are already owed instead of jeopardizing the American jobs, worker income, and lower bills generated by a globally competitive corporate tax rate.