Research Shows that Slashing the Corporate Tax Rate Did Not Spur Economic Growth — But Restoring it Could Boost Productivity and Wage Growth
Economic Policy Institute: “Since World War II, productivity and wage growth in the U.S. economy have been significantly greater in periods with higher corporate tax rates.”
In order to stop President Joe Biden from moving forward with crucial, long overdue job-creating infrastructure investments, opponents have balked at the prospect of raising the corporate tax rate, a core component of the American Jobs and Families Plan.
In fact, yesterday the U.S. Chamber of Commerce doubled down on its opposition to President Biden’s plan to fund infrastructure investments, sending out Chamber President and CEO Suzanne Chambers to falsely claim that, “The proposed tax increases would greatly disadvantage U.S. businesses and harm American workers.”
But the data tells a different story — in fact, research shows that slashing the corporate tax rate as part of the 2017 Tax Cuts and Jobs Act had minimal effect on economic growth, but restoring it could actually boost productivity and wage growth for U.S. workers.
Critics trying to stop the investments in the American Jobs and Families Plans argue that raising the corporate tax rate would prevent growth when, in fact, the opposite is true.
- History shows no link between economic growth and the corporate tax rate:
- The United States economy has grown an average rate of 3% every year since 1870, regardless of fluctuations in the corporate income tax rate.
- A steep corporate tax rate cut in 1986 did nothing to reverse the widening fissure between typical workers’ pay and productivity growth.
- Slashing the corporate tax rate in 2017 through Republicans’ Tax Cuts and Jobs Act (TCJA) primarily benefited well-off shareholders, not the broader economy or working class Americans.
- Because of this, according to tax experts, wealthy shareholders that have profited heavily from recent tax cuts would feel the entire short-term impact of raising the corporate tax rate — not middle class Americans.
- A Congressional Research Service report found that the TCJA’s 21% corporate tax rate did not boost corporate productivity.
- According to the Economic Policy Institute, the link between profit rates and business investment is historically weak, which weakens the entire ‘tax cuts boost productivity’ argument.
Evidence suggests that raising the corporate tax rate will boost productivity and wage growth and bolster the economic recovery.
“Since World War II, productivity and wage growth in the U.S. economy have been significantly greater in periods with higher corporate tax rates.”
“Raising corporate taxes by a modest amount will not undermine the economic recovery and, in fact, using those revenues to finance needed investments will help make the economy stronger.”