Earlier this year, my friend and former Senate colleague President Joe Biden released the initial outline of his American Jobs Plan to revitalize our country’s infrastructure. Building America’s infrastructure back better, if done the right way, would not only enhance our roads, bridges, highways, airports and water systems, it would also accelerate our country’s recovery from the economic consequences of the COVID-19 pandemic.
These are critical investments at a critical time. But like many others, I have great concern that President Biden’s plan, which includes a higher corporate tax rate, would hamstring, rather than help facilitate, that economic comeback.
In the White House’s own words, the plan is “an investment in America that will create millions of good jobs, rebuild our country’s infrastructure, and position the United States to out-compete China.” But any increase in the corporate rate would position the U.S. even further behind global competitors like China. Consequently, it would threaten to halt domestic investment, shift American jobs overseas, restart corporate inversions and reduce worker wages.
Nonpartisan organizations ranging from the Joint Committee on Taxation to the Congressional Budget Office have said that corporate tax costs are paid by workers and consumers. One CBO economist even estimates that “domestic labor bears slightly more than 70 percent of the long run burden of the corporate income tax.”
Businesses here in the United States already pay a combined corporate rate of more than 25 percent when state and local rates are included. This is a figure higher than most of America’s global competitors. The average rate among countries that constitute the Organization for Economic Co-operation and Development — which considers corporate taxes to be the “most harmful type of tax for economic growth” — is 23.4 percent (excluding the United States). The flat 25 percent rate offered in China already undercuts our current one. As a result, over the course of the past two decades, China added 114 Fortune Global 500 headquarters, while the United States lost 58. Today, China has 124, while the U.S. has 121.
In stark contrast to the corporate tax proposal in President Biden’s infrastructure plan, “nine of the world’s largest and most advanced economies … reduced their top corporate tax rate” over the course of the past four years, The Wall Street Journal Editorial Board recently pointed out.
It is worth noting that a slew of meaningful economic wins flowed once we finally reduced our rate back in 2017. This quickly underscored why a competitive corporate rate has long been a bipartisan priority. Leading Democrats like President Barack Obama, for example, rightfully warned about the ramifications of raising taxes on businesses during an economic downturn and the consequences of an uncompetitive corporate rate in general.
Indeed, as I recently included in my written testimony to the Senate Finance Committee, a competitive corporate rate helped foster a climate in which America’s unemployment rate consistently remained below 4 percent, our economy created more than 100,000 private sector jobs per month and nominal wage growth either hovered at or above 3 percent growth for nearly two consecutive years prior to the COVID-19 pandemic.
Kevin Hassett, who chaired President Donald Trump’s Council of Economic Advisers during the implementation of the corporate rate cut, recently noted that “actual gross domestic product by the end of 2019 was about $300 billion higher than the Congressional Budget Office had projected in July 2017. Business investment was about $100 billion higher and 2.8 million more workers were employed. U.S. firms repatriated $1.4 trillion in cash that was previously stuck overseas. And in the first two years after the tax cuts were passed, real median household income increased $4,900. Employment surged, especially among the long-term unemployed, the poor and minorities. Wealth for the bottom 50 percent of households advanced three times as fast as for the top 1 percent.” A corporate tax rate in line with our global competitors stands ready to help our country grasp such remarkable growth in the aftermath of the pandemic.
Along with scores of citizens and policymakers across the political spectrum, I share President Biden’s vision of rebuilding America’s infrastructure and out-competing China. But the United States cannot achieve those twin objectives with an even higher corporate tax rate than the one presently offered by Beijing. As Congress navigates the question of how to fund the worthy goal of repairing our infrastructure, I strongly urge my former colleagues to avoid raising the corporate rate. Any increase would blunt the trajectory of our country’s economic recovery and serve as a barrier to the critical goal of Building Back Better.
Blanche Lincoln is a Democrat who represented Arkansas in the Senate from 1999 to 2011 and in the House from 1993 to 1997. She is the founder and a principal of the Lincoln Policy Group and an adviser for the RATE Coalition, which advocates a globally competitive corporate tax rate for the U.S.