Why Republicans Should Support a Resumption of the 21% Corporate Tax

House Republicans have begun meeting to begin considering their next steps on their tax reform bill. For a majority of them, this will be the first major tax bill they will pass. Only 85 of the 218 House Republicans were in the House when the 2017 tax bill was passed.

House Ways and Means Committee Republicans are well-versed on the tax issues before them. They have held dozens of hearings and 120 listening sessions with the public on the tax cuts, and they recognize the benefits of maintaining a low corporate tax rate. They know that corporations do not pay taxes, and that the burden of the corporate tax falls on workers, employers , and shareholders.

However, 61% of House Republicans were not in Congress in 2017 when the tax cuts were passed. For them, here are five reasons they should support maintaining the 21% corporate tax rate.

One, the lower corporate tax rate helps keep the U.S. competitive around the world. Between 2000 and 2016, 30 OECD countries reduced their corporate tax rates while the U.S. rate stayed at one of the highest in the world.  American investments, jobs, and companies moved overseas to avoid the high U.S. rate. Since we reduced the rate, not one company has moved abroad.

Two, a lower corporate rate benefits working families.  A House Ways and Means Committee analysis shows that the 2017 tax cuts increased workers’ real wages by 4.9%, the largest growth in real wages in 20 years. Studies show that raising the corporate rate results in lower wages, with as much as 70% of the burden falling on labor. A Federal Reserve Board study found that a higher corporate tax rate is “uniformly harmful” to workers.

Three, a lower corporate tax rate benefits small businesses. Raising the rate would not just hit large corporations but a substantial u bet of small firms. According to one study, an estimated 1.4 million small businesses would be hit by a corporate rate increase. As many as 85% of them have fewer than 20 employees.

Fourth, a lower corporate tax rate is key to increasing investment, productivity, and growth.
A National Bureau of Economic Research study found that the corporate tax cuts, including the rate reduction, increased domestic capital investment by 20% in the first two years after enactment. The study estimates that over the long-run, the lower rate will increase productivity, wages, and real economic growth.

Firth, an overwhelming body of economic research shows that increasing the corporate tax rate is the most economically harmful tax increase, hurting wages, jobs, and investments. Numerous studies show that a higher rate would reduce capital investment, resulting in lower economic output and a smaller economy.

Even a small rate increase would be harmful to the economy. A recent Tax Foundation study showed that raising the corporate rate by just one point would shrink the economy, reduce wages, and lose thousands of jobs.

So as the tax debate unfolds, Members of Congress should keep in mind that raising the corporate tax rate would hurt U.S. competitiveness, reduce wages, hit small businesses, lower investment, and slow economic growth.