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As they look to the November midterm elections, House Republicans have unveiled their “Commitment to America.” It’s a policy agenda they are pledging to put in place if they win control of the House of Representatives. The GOP tax reform plans are in stark contrast to those proposed by President Joe Biden and congressional Democrats.
House Republicans are committing to keep in place the lower tax rates enacted in 2017 for individuals, small businesses, and companies. They believe these tax policies will increase economic growth. In contrast, Congressional Democrats have pledged to increase individual and corporate tax rates if they retain control of Congress. They believe more taxes are needed to help finance more government spending programs.
In 2017, the corporate tax rate was lowered from one of the highest in the world to a more competitive rate, and the economy boomed. Unfortunately, Congressional Democrats do not seem to understand how a higher U.S. corporate tax rate would make it more difficult for U.S. companies to compete. A higher corporate rate reduces investment by raising the cost of capital, reducing productivity and economic output. The lower output from the higher rate leads directly to higher prices, lower wages, and fewer jobs.
Yet, were Democrats to raise the corporate tax rate as they desire, they would be putting U.S. companies at a major competitive disadvantage. Consider, after all, that most of the world’s advanced economies have reduced their corporate rates. The United Kingdom’s rate is 19%, and 20 OECD countries have rates below 20%, lower than the combined U.S. federal-state rate of 25.8% and much lower than the 32.8% rate the Biden administration is pushing.
The choice is clear. In our global economy, it makes no sense to raise our corporate rate even higher. Keeping our tax rates low will help American businesses grow at home and compete abroad.
Bruce Thompson was a U.S. Senate aide, assistant secretary of the treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.
