Don't Pour Fuel On the Slowdown Fire With Corporate Tax Increases
(AP Photo/Eric Gay, File)
Don't Pour Fuel On the Slowdown Fire With Corporate Tax Increases
(AP Photo/Eric Gay, File)
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Last week the Federal Reserve raised interest rates by 0.50%, the largest rate hike in more than two decades. At a press conference shortly after announcing the move, Fed Chairman Jerome Powell indicated that the Central Bank is considering additional .50% rate hikes in the coming months.

The Fed’s increasingly hawkish posture speaks to the seriousness of the inflation crisis gripping the American economy. And though these rapid and substantial rate hikes are necessary to curb rising prices, they do come at a cost. Higher rates and less liquidity have historically dampened economic growth.

In addition, other factors, such as conflict in Europe, persistent supply chain issues, and lingering effects of the pandemic, are stressing the system and clouding domestic and global economic outlooks. Indeed, a rapidly growing number of institutions and financial professionals are forecasting a recession on the horizon.

After serving nearly two decades in the U.S. Senate and House of Representatives - during both the Dot-Com Crash and the Great Recession - I’ve seen firsthand how ill-conceived policies can severely worsen situations like the one before us today. It is critical for legislative policymakers to set aside partisan ideology and proceed in a deliberate and thoughtful manner. Lawmakers should ensure they are adhering to the time-tested adage of “do no harm.”

That is why I am concerned by renewed attempts to increase taxes on American businesses at this time. In his 2023 Budget proposal, President Biden calls for hiking the federal corporate tax rate from 21% to 28%. Moreover, Senate Majority Leader Chuck Schumer recently suggested that a corporate tax hike is necessary to tamp down surging inflation.

Given the economic headwinds and growing cloud of uncertainty, now is the worst possible time to implement a policy OECD considers ‘the most harmful type of tax for economic growth.’ A corporate tax increase would compound inflation, accelerate the economic slowdown, and yield wide-ranging negative consequences, with American families and workers bearing the brunt of the pain.

There is an overwhelming body of research showing an inverse correlation between business taxes and worker wages. For instance, 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%.”

One of the cruel realities of the current inflation crisis is that, for the majority of Americans, prices are rising at a faster pace than their paychecks. As a result, folks are experiencing a painful decline in their purchasing power. A corporate tax increase would exacerbate this trend, layering more economic pain on workers already struggling to get by.

To make matters worse, a corporate tax hike will lead to higher retail prices and generally higher costs of living. The result would be a double whammy for workers and families, who will be forced to pay for increasingly expensive goods and services with smaller and smaller paychecks. After two years of pandemic related hardship and anxiety, we should provide folks with relief, not add insult to injury.

The case against a corporate tax increase is more clear-cut when considering the current global environment. American corporations already pay a combined tax rate of more than 25%, when state and local levies are included. President Biden’s proposal would increase the effective combined rate to around 32%, well above every other OECD nation. For reference, businesses in China pay roughly 25%, Europe’s average corporate tax rate comes in at around 20%, and the combined worldwide average statutory rate currently stands at approximately 23%. At a time when global competition is rising at a rapid pace, we can’t afford policies that undermine domestic investment, stifle growth and innovation, and hamstring the companies and businesses that create American jobs.

Instead of targeting the tens of millions of American businesses that responsibly pay their taxes, lawmakers should focus their attention on the handful of large, multinational corporations that leverage carve outs and loopholes to pay little to no taxes. That is something I - and millions of Americans across the political spectrum - could get behind and support.

After two long and difficult years fighting this pandemic, we can finally see the light at the end of the tunnel. However, we’d be mistaken to think we are completely out of harm's way. Inflation is surging at record rates. Interest rates are rising. Consumer confidence is waning, and retailers are struggling to come back from the pandemic.

Make no mistake, the risk of recession is very real. The last thing policymakers should do is pour fuel on the fire by raising taxes on American businesses.

Blanche Lincoln, a former U.S. Senator from Arkansas, is the founder of the Lincoln Policy Group and works as an advisor for the RATE Coalition.

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