Newly released minutes from a Federal Reserve meeting last month show that top officials at the central bank are seriously concerned about stubbornly high inflation impacting the American economy. Rising prices are putting more and more strain on the working American’s budget - especially in rural states like my home state of Arkansas - and there is no end in sight.
As monetary policymakers weigh their options, congressional Democrats attempting to advance the Build Back Better plan should take care not to pour gasoline on the fire with a corporate tax hike.
President Biden promised not to raise taxes on working Americans and to give rural families “a little breathing room.” With inflation slowing the nation’s economic recovery and interest rate hikes looming, an increase in the corporate tax rate would disproportionately impact the rural Americans the President wants to fight for.
Rural workers feel the effects of misguided economic policy in their wages. Though we hear new stories every day of employers offering higher pay and bonuses to workers, data from the U.S. Bureau of Labor Statistics indicate that inflation is all but erasing the wage gains generated by the economic recovery.
Raising taxes on businesses would only exacerbate the trend: The Federal Reserve Board estimates that a mere 1% increase in the corporate tax rate “would reduce wages by between 0.3% and 0.6%.”
If real wages are barely treading water in what should be the best labor market for workers in living memory, how can Congress justify sinking those wages even further with new taxes?
Corporate tax hikes also cost jobs; a trend keenly felt in rural America. Labor force participation in these communities already lags large metropolitan areas. This dynamic increases the tax burden on corporate employers and force them to cut jobs or leave for friendlier business environments, depriving rural areas of employment options they can ill afford to lose. Study after study has shown that corporate tax hikes are “almost uniformly harmful” to employment, labor force participation, and wages, even in the best of times.
And these are clearly not the best of times, thanks to persistently high inflation. Recent data from the Joint Economic Committee showed how skyrocketing consumer costs disproportionately impact low-income Americans. “Surging prices” for consumers across the board are “especially harmful for poor and middle-class Americans,” the report found.
But a Bank of America analysis last month revealed how rural Americans are bearing the brunt of inflation costs more than any other group. Annual purchasing power for rural families has dropped 5.2% due to inflation, compared with only 3.5% in urban areas. The goods affected most by inflation - food, energy, used cars - are also the goods that rural households spend more on compared to their urban neighbors.
Lawmakers should be finding ways to ease the burden of rising consumer costs. A corporate tax hike would do the opposite, forcing producers to raise retail prices even more. The National Bureau of Economic Research estimates the same 1% increase in the corporate rate that would undermine wage growth for working families would also translate to a 0.17% increase in retail prices, compounding the financial blow to rural consumers. Rural Americans feel the crunch of soaring prices more than anyone else; driving those prices even higher with a corporate tax hike would be a gut punch for working families.41% of Arkansas’ population lives in rural communities. Our median annual income is $48,952, not even three-quarters of the national average. Nearly 475,000 Arkansans live in poverty. When President Biden promised “a little breathing room” for working America, most Arkansas families could reasonably feel he was talking to them. The Fed’s concern over inflation will undoubtedly drive them to raise interest rates this year. For Arkansas farmers, that means more expensive financing for land purchases and business operations. This added cost for rural producers may be unavoidable.
What is avoidable, however, is counterproductive tax policy. A higher corporate tax rate would mean lower wages for hardworking rural Arkansans. It would mean higher tax bills for the 7,335 companies in Arkansas employing fewer than 500 people, putting jobs at risk. And it would further raise the already high cost of consumer goods across the state. Improving the quality of life in rural parts of our country requires corporate America to participate by making and keeping critical investments in these areas. Everything is more of a challenge in rural America – whether its access to education, broadband, healthcare, or other services. We must keep a consistently competitive rate so these companies can justify new growth and job creation in these areas over the long-term. If lawmakers truly have the best interest of rural America at heart, they will leave a corporate tax rate hike out of the final Build Back Better legislation.
