The Brookings Institution, a Washington think tank which claims to provide nonpartisan research on the most important issues in the world, is proposing to increase the U.S. corporate tax rate to 28%, a proposal out of touch with reality and what is going on around the world and across the country.Rather than raising tax rates, countries around the world and states across the U.S. have been reducing corporate tax rates to increase economic growth and create more jobs.
Increasing the corporate tax rate to 28% would result in a combined federal-state tax rate of 32.8%, one of the highest rates in the world, putting US companies at a significant competitive disadvantage against global competitors.Our competitors around the world have recognized that a higher corporate tax rate is the most economically damaging tax increase and nearly all of them have been reducing their corporate tax rates to help their economies grow.
A case in point is Ireland, where economic growth is booming, increasing at the fastest rate in the eurozone. A lower corporate tax rate has increased business investment, increasing economic growth at double-digit rates.
Another example is Greece, which has rebounded from its financial crisis a decade ago to become one of the fastest growing economies in Europe, growing at twice the eurozone average. The economic recovery began when Greece reduced its corporate rate and business investment in the country surged.
A stark contrast is the UK, where the Conservative Party increased the corporate rate this year from 19% to 25%. Since then, the UK economic growth has been stagnating, up only 0.1% in August following a 0.2% decline in July.The UK Labour Party, seeing the economic boom in Ireland, is pledging to reverse their longstanding support of tax hikes to focus on economic growth, not higher taxes. Labour economic spokesperson Rachel Reeves announced the party’s new anti-tax increase position, saying the UK “cannot tax and spend our way to economic growth,” and that the “lifeblood of a growing economy is business investment.”
Across the U.S., states that have the lowest individual and corporate tax rates generally have the best economic growth and lowest unemployment rates. Since 2021, 25 states have cut individual tax rates and 13 states have reduced corporate tax rates.
In Iowa, individual and corporate rates have been reduced substantially, spending has been curbed, and the economy has thrived. Economic growth is increasing at 5.2% and the unemployment rate has dropped to 2.9%.
Other states, such as Florida, Idaho, North Dakota, South Dakota, Nebraska, and Montana have shown that lower tax rates result in faster economic growth and lower unemployment.
The only result from raising the corporate rate to uncompetitive levels is that economic growth falls and jobs and investment move overseas. The Brookings Institution and the Democratic Party need to recognize, just as the UK Labour Party has, that a pro-growth policy of lower tax rates and spending restraint is the best way to increase economic growth to benefit all Americans.
