Despite the growing threat of a global recession, Senate Democrats are still trying to raise the U.S. corporate tax rate. Even though economists warn against raising taxes in a recession, two leading Democratic Senators want higher taxes on U.S. companies.Senators Ron Wyden and Bernie Sanders are using a report from the GAO to argue that a low effective tax rate in 2018 shows that the 2017 tax law was a corporate windfall and should be repealed.Unfortunately, the Senators are missing the full story about the 2017 tax cuts. The GAO report actually found that while the effective rate was lower, total tax liability for corporations was higher in 2018 than before the tax law passed. That’s because the law also broadened the tax base and taxed more foreign income.As a result, we have a fairer tax system with a lower rate and a broader base. Instead of a corporate windfall, GAO found that “actual tax liability remained relatively stable.”Before the 2017 law, the U.S. corporate tax rate was the highest in the developed world, uncompetitive and damaging to US economic growth. The combined federal-state average tax rate was 38.9%, two-thirds higher than the average OECD rate of 23.8%.The law reduced the U.S. rate to 25.8%, more competitive with other advanced economies and making the U.S. more attractive to new investment from abroad.The lower rate had immediate positive results, increasing investment, economic growth, and real wages in 2018 and 2019 before the pandemic shutdowns disrupted the economy. Fortunately, the US economy recovered strongly from the economic downturn in 2020, and the lower corporate tax rate may have been a factor.The U.S. bounced back from the shutdowns faster than any other country, and a strong case can be made that the lower rate helped the US sustain investment, employment, and growth. New research has shown that a corporate rate reduction generates “large and persistent “ positive effects on the economy in the long run.The lower rate kept jobs in America by reducing the incentives to move earnings abroad. Corporate tax inversions, a major problem during the Obama-Biden administration, have disappeared. Nearly $3 trillion in overseas earnings have been returned to the U.S., increasing investment and corporate tax revenue.The GAO report covered only 2018, which was largely a transition year for the tax reforms. Since then the benefits of the 2027 law have grown. Corporate tax revenues are at the highest level ever, and corporate tax collections as a share of the economy are now higher than the 40-year average.Raising the corporate tax rate in the face of a recession, as these Senate Democrats are proposing, would be a major economic mistake and a disaster for working families, small businesses, and the entire U.S. economy.
Senate Democrats Push Tax Increases In the Face Of a Recession
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