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Last week, President Biden proposed an increase in the corporate tax rate to pay for his disastrous far-left "infrastructure" bill. According to recent polling from Morning Consult and Politico, roughly 60% of voters support raising taxes on corporations and wealthy Americans to pay for this $2.2 trillion proposal.
It’s no surprise that 85% of Democrats want to increase corporate taxes to help pay for the bill. But more troubling is that among likely Republican voters, 45% support this measure, while only 47% are opposed. The Biden-Harris administration’s plan to hike corporate taxes by 38%, from 21% to 29%, would eliminate a key provision of the Trump tax cuts. Contrary to the claims of Democrats and their media allies, slashing taxes under President Trump was a success.
From 2017 to 2019, America witnessed the largest growth in the number of small businesses owned by minorities in history. Median household income increased by over $6,000, or nearly 10%, in the year following the Trump tax cuts--the fastest rise in over three decades. It’s clear that lowering taxes across the board worked wonders for the economy.
Despite this data, slogans like "tax the rich" and "tax corporations'" still poll well. Americans have been misled by politicians who claim that "corporate greed" has resulted in wealth being siphoned off middle and lower income workers for generations. Coupled with headlines that mega-corporations like Amazon and Facebook aren’t paying any income taxes (stories that are often false), it’s easy to see how millions of voters would be happy to take money from these purportedly exploitative companies to repair crumbling bridges and roads.
What many pundits and voters forget is that a corporate tax hike doesn’t just impact corporations. History shows increases in corporate taxes are always passed on to, and ultimately paid for by, consumers. Ironically, it’s low income Americans -- not “the rich” -- who are disproportionately harmed by what are advertised as tax hikes on the wealthy.
It’s a simple fact that corporations facing higher operating costs due to tax increases will foist these on consumers by raising prices. A 2009 study by the nonpartisan Tax Foundation estimated that for every 1% increase in corporate tax rates, consumers face a 0.6% increase in retail prices. While many wealthy households will barely notice the difference, middle and lower class Americans will end up paying a significantly higher percentage of their income for the goods and services they require.
An increase in the corporate tax rate would also render companies unable to provide employees with the raises, bonuses, and commissions they would otherwise receive. Case in point: The Trump-era repatriation-amnesty program in 2018 allowed firms to bring funds held overseas back to the United States without additional taxes. Upon returning to America, many of these corporations paid out billions in employee bonuses and salary increases.
But with the higher corporate taxes proposed by the White House, promotions and bonuses like these would be given less frequently. Middle class income growth would plummet due to employers’ inability to pay workers as much as they would have otherwise. As a result, workers end up with less take-home pay, since this cash now goes to Uncle Sam instead of employees.
A corporate tax increase also slows down economic growth. The New York Stock Exchange estimates that a 38% hike in the corporate tax rate will slow the increase in stock values by 25% over the next 5 to 7 years. And since more than 60% of middle class households have some money in stocks, millions of retirees and middle class investors will pay the hidden tax of lower levels of investment and less income saved for retirement.
Higher corporate taxes also means fewer employees. The Chamber of Commerce notes that Biden’s proposed corporate tax increase would mean 1.6 million fewer small business jobs over the next decade. Statistics show that these jobs are overwhelmingly concentrated in low and middle income communities, leading to lost economic opportunities in these areas.
And with a corporate tax hike, all of us pay perhaps the worst hidden tax: slower corporate innovation. Free markets frequently create new, life-saving medical technologies and drugs in the United States, and innovation in manufacturing drives prices down in a variety of industries. Depriving private companies of capital that would otherwise be used to promote price-lowering innovation is a destructive policy that will increase costs to companies and consumers alike, all while slowing growth.
If the Biden-Harris administration hikes corporate taxes, we’ll be forced to endure higher costs for products and services, lower pay, higher unemployment, and reduced innovation. Unfortunately, this is part of a pattern from the White House--promoting their socialist agenda regardless of the consequences for everyday Americans.
Adam Brandon is the president of FreedomWorks.