The Treasury Department has released the final budget update for the fiscal year 2021. The numbers show that corporate tax receipts increased 75% to $372 billion, the highest level of corporate taxes ever collected. Corporate tax receipts are now $75 billion higher than they were before the 2017 tax cuts.
Total federal tax collections were $4.046 trillion, $465 billion higher than the Treasury estimated in May. This $465 billion in increased revenue is more than a 25% corporate rate hike would raise over 10 years. These numbers show why it would be a mistake to raise the corporate tax rate. The Treasury collected the most corporate taxes ever at a 21% rate. This shows that a lower, not higher, rate can raise more revenue.
We saw this in the 1960s, when the Kennedy tax cuts led to one of the largest economic expansions in our history. President John F. Kennedy said that a reduction in individual and corporate tax rates would “spur economic growth and an expanding economy, thereby creating more revenue.” With the lower tax rates, the economy grew an average of 5% a year and government revenue increased by 65% from 1965 to 1970. But by the Obama-Biden administration, the U.S. had one of the highest corporate tax rates in the world.
The 2017 tax cuts reduced the corporate tax rate to a globally competitive rate, and U.S. companies could compete again in world markets. That is why corporate tax receipts are now surging.
But with rising inflation and supply shortages, President Joe Biden and congressional Democrats want to raise the corporate tax rate. This despite the fact that a higher corporate rate would result in lower tax revenue collected over time, higher deficits, and a larger national debt.
As President Kennedy said in 1962, “an economy hampered by restrictive tax rates will never produce enough revenue” to reduce budget deficits. Democrats should take Kennedy’s advice and drop the higher corporate tax rate.
Bruce Thompson was a U.S. Senate aide, the assistant secretary of the Treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.
