By Naveen Athrappully
Contributing Writer
The U.S. Chamber of Commerce asked Congress not to raise corporate taxes next year and to support “pro-growth tax policies” that ensure robust economic gains.
In 2017, then-President Donald Trump signed the Tax Cuts and Jobs Act, which reduced the corporate tax rate in the United States from 35% to 21%. This reduction “increased the after-tax return on capital investments in businesses, made the U.S. tax rates globally competitive, and boosted the amount of revenue accruing to workers through higher wages,” the Chamber of Commerce said in a Monday post.
The TCJA is scheduled to end next year. The chamber called on Congress to “preserve our now-competitive business tax rates.”
In addition, the organization suggested implementing policies such as allowing firms to deduct research and development expenses and enabling companies to immediately deduct the full cost of certain capital investments.
Democratic presidential nominee Vice President Kamala Harris has proposed to raise the corporate tax rate from 21% to 28% if she wins the November election — the same proposal the Biden administration has put forward for the fiscal year 2025 budget.
Raising corporate taxes is the “fiscally responsible way to put money back in the pockets of working people and ensure billionaires and big corporations pay their fair share,” Harris’s campaign spokesperson, James Singer, said on Aug. 19.
“As president, Kamala Harris will focus on creating an opportunity economy for the middle class that advances their economic security, stability and dignity,” the spokesperson said.
The chamber warned that raising taxes on businesses would negatively affect the U.S. economy in three ways.
For one, such hikes reduce the return on investment for business owners, potentially making them wary of spending funds on ventures. Second, higher taxes end up affecting not just the business and its investors but also workers and employees.
The organization cited a study to point out that 52% of higher corporate taxes are ultimately borne by customers in the form of higher prices, 28% by workers as lower wages, and 20% by shareholders through lower investment on returns.
Finally, higher taxes put U.S. businesses at an economic disadvantage compared to foreign companies.
“As a result, companies are incentivized to locate their headquarters and operations in lower-tax jurisdictions. This scenario played out in practice throughout the years leading up to 2017, when the United States had the highest statutory corporate tax in the industrialized world, causing many formerly U.S.-headquartered multinationals to re-domicile abroad,” the chamber stated.
The group asked Congress to ensure that the U.S. tax system remains internationally competitive for both U.S. companies operating abroad and foreign firms investing within the United States.
Reducing Taxes
Trump has raised the possibility of bringing down the corporate tax rate to 15% if he’s elected president.
While such a move would “boost growth,” it could also reduce federal tax revenues at a time when the country’s debts and deficits are “already unsustainably high,” states a July post by the think-tank Tax Foundation.
“A 15% corporate rate would be pro-growth, but it would not address the structural issues with today’s corporate tax base. Currently, businesses cannot fully recover their investment costs, as they must amortize R&D expenses over five (or 15) years, and bonus depreciation is beginning to phase out,” it said.
“These investment penalties will blunt any positive effects of a corporate rate reduction, repeating a mistake from past tax reforms.”
The Tax Foundation suggested that a lowering of the tax rate be paired with reforms broadening the tax base and removing penalties on investment.
The National Association of Manufacturers, which represents 14,000 businesses across the United States, says that it remains “staunchly opposed” to any tax increases that would punish manufacturing entities.
The 2017 reductions were “rocket fuel” for U.S. manufacturers, leading to “record job creation, capital investment and economic growth,” it stated.
The NAM pointed out that manufacturing production grew by 2.7% in 2018, a year after the lowered taxes, with December 2018 being the “best month for manufacturing output” since May 2008.
In 2018 and 2019, capital spending in the manufacturing sector grew by 4.5% and 5.7%, respectively, showing the positive impact that reduced taxes have had.
However, if the pro-manufacturing tax provisions were to end next year, “virtually every manufacturer will face devastating tax increases,” the association said.
