Republicans in Congress are preparing to build upon the success of the 2017 Trump Tax Cuts by not only making President Trump’s signature legislative achievement permanent, but also cutting taxes further to spur economic growth.
The Washington Post reported on Sunday that both Trump’s economic advisors and key Republican lawmakers in Congress are planning a new round of business tax cuts that would boost the U.S.’s global competitiveness, including discussions to further cut the corporate income tax rate.
This stands in stark contrast to President Biden’s tax agenda, with Biden calling for the full expiration of the Trump tax cuts and his plan to raise the current 21% corporate income tax rate to 28%, higher than communist China’s 25%.
Among the Republican lawmakers quoted in the Post was Sen. Mike Crapo (R-Idaho), the Ranking Member on the Senate Finance Committee. Crapo correctly made the case that corporate taxes are paid by workers, retirees and consumers.
Here is the excerpt from the Washington Post:
“The corporate tax rate has a much bigger impact on individuals than it does on businesses,” Sen. Mike Crapo (R-Idaho), who is in line to chair the tax-writing Senate Finance Committee if Republicans win control of the upper chamber, told The Washington Post. “Let me put it this way: Corporate taxes are paid by workers, by retirees and by consumers, so it has a huge impact on everybody in the United States.”
How Workers Pay the Burden of the Corporate Tax Rate
The corporate income tax is a tax on American workers. Studies show that higher corporate taxes disproportionately reduce wages for young workers, the low-skilled, and women due to significant barriers to working, like limited transportation and childcare costs.
According to Stephen Entin of the Tax Foundation, workers bear an estimated 70 percent of the corporate income tax. He wrote in 2017:
“Over the last few decades, economists have used empirical studies to estimate the degree to which the corporate tax falls on labor and capital, in part by noting an inverse correlation between corporate taxes and wages and employment. These studies appear to show that labor bears between 50 percent and 100 percent of the burden of the corporate income tax, with 70 percent or higher the most likely outcome.”
The non-partisan Joint Committee on Taxation affirmed in congressional testimony that corporate tax rate hikes hit “labor, laborers.”
Testifying before the House Ways & Means Committee, JCT Chief of Staff Thomas A. Barthold said:
“Literature suggests that 25% of the burden of the corporate tax may be borne by labor in terms of diminished wage growth.”
How Retirees Pay the Burden of the Corporate Tax Rate
Individuals with pensions and retirement accounts are also hit by corporate taxes. Higher corporate tax rates would reduce the value of corporate equities as a result of lower corporate investment.
An August, 2021 analysis performed by the non-partisan Joint Committee on Taxation (JCT) shows how low- and middle-income Americans have a stake in the success of U.S. corporations through ownership of stocks, bonds, pensions, IRAs and other retirement accounts. There are 107.8 million U.S. taxpayers with ownership stake in U.S. corporations, 97.7 percent of which earn less than $500,000 a year.
Even the left-wing Tax Policy Center acknowledges that at least 30 percent of corporate stock is held by retirement accounts, with that number on an upward trend.
How Consumers Pay the Burden of the Corporate Tax Rate
Several studies have previously proven that corporate tax hikes will increase consumer prices.
A 2020 National Bureau of Economic Research paper found that 31 percent of the corporate tax rate is borne by consumers through higher prices. The study also found that increasing the corporate tax rate by one percentage point leads to a 0.17 percent increase in retail product prices.
Working families spend a significant portion of each paycheck on goods and services. In this way, rising costs disproportionately hurt low- and middle-income Americans. According to the OECD, core goods and services make up more than half of middle-class spending. As the OECD describes it, there is a “rising cost of the middle-class lifestyle.”
A 2023 study published in Contemporary Accounting Research found that higher corporate taxes increase consumer prices and that consumers bear about 64% of the corporate tax burden.