Biden's Corporate Tax Rate Hike Will Hurt Small and Midsize Local Businesses

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Posted by Isabelle Morales on Tuesday, September 15th, 2020, 4:10 PM PERMALINK

Presidential candidate Joe Biden has proposed raising the corporate tax rate from 21 percent to 28 percent. This would impose on Americans one of the highest corporate tax rates in the developed world, even higher than Communist China's 25 percent. 

Biden doesn't want voters to know that the vast majority of corporations are local and regional small and mid-sized businesses vital to communities.

According to the Congressional Research Service, "The majority of both corporations and pass-throughs in 2011 had fewer than five employees (55% of C corporations and 64% of pass-throughs). Nearly 99% of both corporations and pass-throughs had fewer than 500 employees, the most common employment-based threshold used by the Small Business Administration (SBA)." For reference, Amazon has one million employees and Walmart has 2.2 million employees.

The most dire effects of a corporate tax hike would be felt by smaller businesses that Biden has claimed to be a champion for. It would also have severe consequences on workers' wages and the economy as a whole. 

Kevin A. Hassett and Aparna Mathur released a study on the corporate tax rate in 2015. The study, "A spatial model of corporate tax incidence," was published in Applied Economics, Taylor & Francis Journals. Here are some of their findings on the impact of a corporate tax rate raise:

  • A 1% increase in corporate tax rates leads to a 0.5% decrease in wage rates. 
  • Both domestic and neighbor country tax rates are important in explaining the formation of domestic capital-labor ratios. Higher tax rates in neighboring countries have a positive and significant effect on capital formation in the domestic country. When the corporate tax rate is increased, businesses move operations out of the country. 
  • All measures of corporate taxation, such as the top national corporate tax rate, the effective average and the effective marginal tax rate negatively affect capital formation. Higher top rates discourage capital formation and capital expenditure. 
     

In other words, a Biden corporate tax increase would lead to a decrease in wage rates, businesses moving operations out of the United States, an overall decrease in capital expenditure and capital formation (leading to less investment in things like machines, tools, factories, transport equipment, materials, electricity, etc.), a GDP reduction, and hundreds of thousands of job losses. The effects could be especially severe due to the vulnerable state the pandemic has put the country in.

Given the disproportionate amount of corporations that are relatively small, this could end up hurting key local employers. 

Americans for Tax Reform has collected several testimonials from small and mid-sized corporations who benefited greatly from the Tax Cuts and Jobs Act.

For example, Conger Construction Group based in Lebanon, Ohio was able to double the amount of employees, offer bigger bonuses, give more paid time off, and provide additional healthcare benefits to workers:

“Justin Conger, owner and president of Conger Construction Group in Lebanon, Ohio, a C corporation, attributes the explosion of his business to the TCJA’s flat corporate tax rate of 21 percent, and he thinks his company’s success indicates the health of the overall economy.

“Construction is a lagging indicator of the economy,” he told members of the House Committee on Small Business on Wednesday. “If our clients or other businesses are not growing, expanding, or re-investing in their facilities, there is no need for commercial construction services. There is a lot of work to be completed before a project can start; from an owner obtaining financing, to architectural drawings being completed, to regulatory approval from local jurisdictions. Businesses all over Ohio are growing and expanding by utilizing the benefits of the TCJA and reinvesting additional generated capital into their businesses. In talking with past, future, and current clients, over 80 percent indicate the reason for their investment in construction services is due to the economy and current tax structure.”

“Conger said the number of employees at his company doubled in the last year and a half, and he’s been offering bigger bonuses, more paid time off and better healthcare benefits to workers because business has been so good. Conger said they’re also expanding office space due to the increased number of employees.”

It's important to remember that when leftists cite "evil corporations that must be held accountable," they prefer to create the illusion that their policy preferences would only hit large multinational corporations. In reality, they leave out the small and mid-sized businesses that happen to be classified as corporations, the employees of these corporations, and those corporations' consumers--all of which will be expected to foot the bill for leftist policies. 

 

 

Photo Credit: Bill Smith

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