As part of her tiresome schtick about how she is going to pay for all her promises by raising taxes on billionaires and corporations, literally an arithmetical impossibility by any reckoning, the Democrat Harris keeps bashing the Republican Trump for proposing “tax cuts for big corporations.” It is one of her most frequent attack lines.
Well, she’s darn right that Trump is doing that. It’s a tremendously wise thing for him to propose.
The corporate income tax is one of the flat-out dumbest taxes imaginable. The more a corporation is taxed, the more it either passes the taxes on to consumers in the form of higher prices or reduces hiring or perhaps gives worse dividends to its stockholders. Either way, it is a major drain on the economy.
Indeed, the Congressional Budget Office estimated that “domestic labor bears slightly more than 70% of the burden of the corporate income tax.” So much for Harris being on the side of laborers.
A high corporate income tax also leads to businesses large and small spending much more time on tax avoidance strategies than on growth-oriented endeavors, and it takes more time from IRS workers monitoring corporate compliance when they could be reassigned to the notoriously weak IRS help desk. It also benefits large businesses that can afford pricey accountants over small businesses that can’t.
Almost invariably, nations that cut their corporate income tax rates see almost immediate spurts, some of them vast, in economic growth and overall economic health. Consider the famous “Celtic Tiger” economic phenomenon in Ireland, during which that nation in a few short years rose from being one of Europe’s poorest to one of its richest. After it began a phased-in reduction of its corporate tax rate from 40% to 12.5% in 1996, Ireland’s growth rate more than doubled U.S. growth, and its per capita income surpassed ours. Moreover, tax revenue actually rose each year until the start of the worldwide recession, and average salaries increased each year, even during the 2008-10 recession.
Back in the United States, Republicans took notice. While most tax cuts only partially “pay for themselves” by generating economic growth that makes up for part of the “loss” to the Treasury from lower rates, corporate taxes behave differently. When part of the Tax Cuts and Jobs Act that Trump signed in 2017 cut the top corporate rate from 39% to 21%, critics said the lower rate would explode the deficit without benefit to the broader economy. Just the opposite occurred.
Even after taking inflation into account, real gross domestic product grew after the tax cuts from 2.9% in 2018 and 2.2% in 2019 while the unemployment rate fell from 4.4% to 3.7%. Meanwhile, federal receipts from corporate income taxes didn’t fall precipitously. They grew from $230 billion in 2017 to $334 billion in 2021 to $445 billion in 2023. Such are the benefits of unshackling the economy from high corporate taxes.
Harris, though, proposes to undo all those benefits. She proposes hiking the corporate income tax rate from 21% to 28%, which would be significantly above, and uncompetitive with, the world’s average rate of 23.45%. Yet history (discussed above) shows that the hikes would not be likely to raise revenue to pay for Harris’s other big-government boondoggles, but they would instead retard growth and thus bring in no new revenue. Or, worse, they would actually drive revenue down if the higher taxes cause a recession.
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Trump, on the other hand, wants to reduce these rates still further, down to 15%. Even then, they would be higher than Ireland’s. Yet by keeping prices lower while boosting profits, and in turn boosting the financial health of all the ordinary retiree pension funds that have holdings in U.S. corporations, the lower rates could make the domestic economy roar like a lion. And again, the federal government’s balance sheet probably wouldn’t suffer a penny.
It is the proverbial “little guy,” meaning family consumers and laborers, who have the most to gain from lower corporate income taxes. Trump is right, and Harris is wrong. Her policies would make average people suffer.
This article was originally published at www.washingtonexaminer.com
