America’s corporate tax code is like a heavy anchor holding a fast-moving ship at bay.
The winds of opportunity are blowing—our economy could be more dynamic and prosperous than ever. Yet the current corporate tax code stifles economic freedom for all Americans, right down to the working class.
Tax reform is not about securing special deals for wealthy and favored interests. Quite the contrary—it is about restoring America’s economic freedom and entrepreneurial pulse from the ground up.
For decades, high and burdensome corporate taxes have clogged America’s economic arteries and undermined U.S. global competitiveness. While most advanced countries in the world have responded to new global economic realities by slashing corporate tax rates, America stands almost alone in having resisted such cuts, with its corporate tax rates among the highest in the world.
The Heritage Foundation’s 2017 Index of Economic Freedom—an annual global study that compares countries’ entrepreneurial environments—highlights the urgent need for the U.S. to change course. For the ninth time in the past 10 years, America has lost ground in the rankings of economic freedom.
A study by the Organisation for Economic Co-operation and Development, a think tank for advanced economies, examined why some countries are becoming more prosperous than others and concluded that “corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes.”
The study finds, not surprisingly, that investment rates fall when corporate tax rates rise, and that the most profitable and rapidly expanding companies tend to be those that are the most sensitive to corporate tax rates.
America’s high and uncompetitive corporate tax rate encourages American companies to relocate overseas, taking jobs, opportunities, and economic freedom with them.
The high rate also discourages companies that remain in the U.S. from bringing revenue earned overseas back home, where it could be invested in new ventures and projects. Instead, to avoid paying the corporate tax, companies leave the money overseas, benefiting people in other countries.
Perhaps most importantly, the corporate income tax hurts U.S. workers who are paid lower wages because of it. As our colleague Adam Michel explains in his recent Heritage backgrounder:
The preponderance of evidence shows that the corporate income tax harms workers through lower wages. Because the U.S. has a relatively open economy, the tax is shifted from owners of capital to workers, the suppliers of labor. Reasonable estimates show that labor bears between 75 percent and 100 percent of the revenue cost of the corporate tax. Contrary to the claims that a corporate tax cut is a tax cut for the rich, a 20-point reduction of the corporate income tax to 15 percent could boost the relative market incomes of the poorest Americans by more than twice the increase for the richest. A tax cut for corporations is therefore a tax cut for the average American.
In today’s more-open economy, where capital, investments, and whole companies can easily relocate to where the cost of doing business is lowest, labor—which is less mobile—bears the brunt of the outdated tax.
The solution is to reform the corporate tax so it no longer takes away the economic freedom of America’s working families.
The current federal corporate income tax is making everyday Americans’ lives harder. It is time to get tax reform done so as to advance economic freedom for all Americans.
This piece originally appeared in The Daily Signal