While Congress is out on August recess, it seems the proverbial grapevine is rustling with a new debate that has the devastating ability to mire the GOP’s tax reform. The chatter is specifically calling out the decrease in the U.S. corporate tax rate being proposed by the Trump administration. An article this week in the Wall Street Journal claims that the new policy could end up being shaped by who bears the greater burden of the cut, the investor or the employee.
This debate seems to be ridiculous; it infers that we should not reduce the percentage because it would also benefit those is in high-income brackets. It appears to be a tactic to filibuster yet another legislative initiative which will help grow the economy. Most people realize that corporations don’t pay taxes. Employees do through lower wages; stock holders do by depressed profits and consumers do by higher prices. It’s all a pass through.
Reducing the corporate rate would result in higher wages, more profits, and lower prices. A win, win for everybody. Even if much of the burden falls on “investors,” the working-middle class will benefit as they hold vast amounts of stock in 401ks and pension funds. Wouldn’t it be refreshing if the discussion around lowering the rate didn’t turn into an “us and them” debate but lead to a consensus of the glass is half-full perspective?
Finding and fixing what is obviously broken -- the low hanging fruit -- is a smart strategy when seeking to increase profits. In the case of tax reform, it is the high level charged on businesses. The Tax Foundation published estimates of the potential growth effects of the rate reduction for companies. The following are among the most impressive of the findings:
“Reducing the federal corporate tax rate from 35 percent to 25 percent would raise GDP by 2.2 percent, increase the private-business capital stock by 6.2 percent, boost wages and hours of work by 1.9 percent and 0.3 percent, respectively, and increase total federal revenues by 0.8 percent.”
The current proposal under President Trump is to decrease the rate to 15% or lower. Therefore, the benefits would be of greater magnitude than quoted here. The impact is also consistent with the findings from the Joint Committee on Taxation, which observed:
“reducing corporate income taxes have the greatest effect on long-term growth by increasing stock of productive capital, which leads to higher labor productivity.”
Experts, economists, and CEOs have long argued the benefits to the economy and the American worker by cutting the business percentage. At present, the combined federal-state rate is 38.9%, the highest among nations which represent most of the world’s major economies. The exorbitant amount is not by choice but through a failure to keep up with global developments. For decades, the U.S. tax level has remained unchanged, while other world economies have kept up with international trends and pursued dramatic rate-reducing tax reforms.
U.S. firms are increasingly at a disadvantage competing for most world consumers and international markets while other nations adopt more favorable tax treatment of foreign-source income. There is no need for debate, passing the initiative to decrease the rate charged to U.S. companies would increase wages for employees, profits for investors and position our nation within international tax norms and rid us of having the highest corporate rate in the world.
