If voters sent one clear message in November’s election, it was that the average American is feeling the painful effects of bad economic policies. Economic policy, therefore, should be a priority for President-elect Donald Trump and incoming lawmakers, whether they are Republicans or Democrats. A clear place to begin is the extension of Trump’s signature 2017 tax law, the Tax Cuts and Jobs Act (TCJA). Congress should extend, or even lower, the provisions that helped ordinary Americans and, crucially, the 21 percent corporate income tax rate.
Extending the TCJA will likey prove more straightforward than the original passage of the bill, because the kinks have largely been worked out. When Trump signed the TCJA into law in December 2017, it followed months (or years) of debates the law’s provisions. This time around, while few improvements are needed, the general structure of the needed tax reform is rock solid.
The election results make clear what Americans are asking for renewal of the TCJA provisions, which drive investment and employment. Lowering the corporate tax rate to 21 percent in 2017 enabled the private businesses to better innovate and provide jobs to many Americans. Increasing the corporate tax rate would punish entrepreneurship, the engine of any vibrant economy.
Moreover, a corporate rate cut would especially help small businesses. Small businesses require substantial capital to invest in their workforce, technology, and infrastructure — key components of sustainable growth. They also often need access to funding much more quickly than a large company would, meaning every dollar in the bank counts. With lower tax rates, companies could retain more of their earnings, which they can then reinvest into expanding operations or employee benefits, such as professional development or higher wages. This kind of reinvestment boosts productivity and improves employee satisfaction and retention rates.
Coupling a reduced corporate tax rate with robust investment policies like a renewed Research & Development (R&D) tax credit could turn America’s economy into a veritable powerhouse. This would not only benefit companies but raise wages. The R&D provision, which was a crucial part of the TCJA, has incentivized companies to invest in new technologies that drive progress across industries. By strengthening this provision alongside a lower corporate tax rate, businesses would have greater financial flexibility to pursue cutting-edge research initiatives without being constrained by funds shortages.
The TCJA’s benefits measurably benefited industry. The “ultimate result [of the TCJA’s corporate reforms] is an estimate that the U.S. domestic corporate capital stock will grow 7.4 percent over the long run as a result of the law,” the Tax Foundation reports. “Most of the growth in investment and the capital stock is predicted to occur within 10 years, and nearly all of it in 15 years. As the capital stock grows, so do worker productivity and wages.”
This tax-cutting approach aligns with global economic trends and addresses several critical factors that influence business growth and competitiveness. For example, reducing the corporate tax rate would enhance the United States’ competitive position against China.
According to data from the OECD, many countries have been progressively lowering their corporate tax rates to attract foreign investment and stimulate domestic economic activity. This strategy is far preferable to subsidization and industrial policy, which tend to distort markets and allocate resources inefficiently. The current average corporate tax rate among OECD countries is approximately 23 percent. Washington should join in on this trend and ensure U.S. rate sit considerably lower than other countries’, which will attract businesses and investment.
The American people gave Congress a mandate to provide tax relief for individuals, families, and businesses. Republican and Democratic lawmakers alike should be ready to partner with President-elect Trump to enact reforms that recapture the success of the 2017 tax provisions. The TJCA helped bring about a red-hot economy during Trump’s first term, and extending it would do the same in his second.
