America Is Competitive Again, Thanks to a Lower Corporate Tax Rate

COMMENTARY Taxes

America Is Competitive Again, Thanks to a Lower Corporate Tax Rate

Apr 2nd, 2018 2 min read

Commentary By

Adam Michel

Senior Policy Analyst, Grover M. Hermann Center

Lauren Bowman

Former Research Assistant, Roe Institute

More than 450 companies have announced bonuses, pay raises, or better benefits in the wake of tax reform. NiseriN/Getty Images

Key Takeaways

The combined federal and state U.S. corporate tax rate fell from almost 40 percent, the highest rate in the developed world, to 24.9 percent.

For tax reform to succeed, federal spending will need to be constrained to reduce pressures to raise taxes in the future.

The new lower tax rate has made American businesses competitive again.

Welcome to the new post-tax reform world where the U.S. again can compete for global business.

The 2017 Tax Cuts and Job Act lowered the federal corporate tax rate to 21 percent. The combined federal and state U.S. corporate tax rate fell from almost 40 percent, the highest rate in the developed world, to 24.9 percent.

The new lower tax rate has made American businesses competitive again.

Those who opposed tax reform and lowering the corporate tax rate claimed it was a tax cut for the wealthy at the expense of everyone else.

They were wrong. A tax cut for businesses is a wage increase for workers.

Corporations employ 54.8 million people in the United States, and research shows U.S. workers pay about 75 percent of the corporate tax through reduced wages.

Americans also benefit when businesses reinvest their tax cut to increase profits. About 40 percent of corporate stock is owned through retirement plans and more than half of Americans are invested in the stock market.

So whether it is through higher wages or bigger retirement accounts, workers, and investors benefit when businesses flourish.

Also, since the passage of tax reform, businesses have increased wages, paid out bonuses and made large investments in America.

More than 450 companies have announced bonuses, pay raises, or better benefits—including American Airlines, AT&T, Bank of America and Comcast. Americans for Tax Reform is tracking all the good news here.

Fiat Chrysler announced it will move some of its manufacturing plants in Mexico back to the United States. The company will invest more than $1 billion in its Detroit plant, which will create 2,500 jobs.

“It is only proper that our employees share in the savings generated by tax reform and that we openly acknowledge the resulting improvement in the U.S. business environment by investing in our industrial footprint,” he said.

Tech giant Apple, also announced it will invest $350 billion and add 20,000 employees over the next five years.

The U.S. lowered its corporate tax rate to encourage business investment and expand job opportunities across America, and it looks to be working. America is again a competitive place to do business.

But Congress should not lose sight of the long-run economic opportunities that good tax reform provides. For tax reform to succeed, federal spending will need to be constrained to reduce pressures to raise taxes in the future.

After all, to solidify the potential benefits of tax reform the existing tax cuts must be made permanent, which will be hard if Washington runs trillion-dollar deficits every year.

This piece originally appeared in The Daily Signal