As we approach the ‘Super Bowl of tax policy’, the end of next year will see the expiration of many 2017 changes to tax policy. This presents an opportunity for a substantial rewrite of the tax code, depending on which party is in power. Vice President Kamala Harris and former President Donald Trump have proposed vastly different approaches to one crucial area of tax policy: the corporate tax rate. Harris proposes raising it to 28 percent, up from the current 21 percent, while Trump suggests decreasing it to either 20 percent or 15 percent. But which way is better? And why should everyday Americans care?
Contrary to popular belief, the corporate tax rate affects everyone, not just the wealthy. While corporations may remit the tax to the government, workers and consumers pay the price over the long run. Economic evidence suggests that corporate tax hikes result in higher prices for consumers and lower wages for workers. Workers with fewer skills and less experience are the hardest hit. If the corporate rate increases, the negative effects won’t be contained to just the rich.
Stability is a key principle of sound tax policy as it helps people plan. Ever-changing corporate tax rates add uncertainty for producers and influence where they make their products. However, when job creators know what their tax burden will be, it becomes easier to plan where they want to expand, hire, and develop.
The corporate rate also significantly affects investment. A lower corporate rate opens up opportunities that businesses may not have explored when higher tax costs were a part of the picture. For example, the 2017 tax reform, which lowered the corporate rate from 35 percent to 21 percent, substantially boosted domestic investment, translating to more jobs for Americans and higher standards of living.
So, what would a 28 percent corporate rate, as Harris proposes, actually do? It’s estimated that it would lower long-run GDP by .61 percent, wages by .52 percent, and employment by 125,000 jobs, while raising $760 billion over 10 years. On the other hand, Trump’s 15 percent proposal would raise GDP by .44 percent, wages by .37 percent, and employment by 93,000 jobs, while reducing revenue by $460 billion over 10 years.
Understanding who bears the burden of the corporate tax and the effects of a higher rate are essential to sound policymaking. A competitive corporate rate would help our tax code raise revenue without standing in the way of individuals looking for greater opportunities—for themselves, their families, their innovations, and their savings. Learn more about the importance of corporate taxes here.