During his presidential campaign, Donald Trump wanted to the reduce corporate tax rate from 35% to 0%. His justification was that it is necessary to lure companies back to America which have fled. He also said we have the highest corporate tax rate in the world (which is untrue). In his new tax plan, he advocates a 15% corporate tax rate, which, although still a massive cut, could potentially make it through Congress. Is cutting the corporate tax rate so much a good idea?
In considering this, I will examine the question from four different angles: firstly, whether lowering the rate would provide growth to middle and lower income people as much as it would corporate executives and shareholders. Secondly, whether 35% is a notably significant number relative to other countries who may lure away American corporations. Thirdly, if so, whether the actual services and jobs provided to our country by said corporations would be reduced if they moved their headquarters to another country. And lastly, whether 35% is a historically high number for the maximum percentage of earnings corporations pay.
In examining the first question, I found that lowering the corporate tax rate would not raise the standard of living for lower or middle class Americans and indeed would likely precipitate even more pressing income inequality than already exists. That is because if corporations are to pay less taxes, the federal government would need to increase revenue on individual income to avoid deepening the federal deficit. That means potentially raising income taxes on most people.
If Congress lowers the corporate tax rate and doesn’t increase revenue elsewhere, it will balloon the national debt, which our government will be forced to service at rising interest rates with expenditures that could otherwise go to infrastructural upgrades, financial aid for education, social safety-net programs, and environmental protections, all of which would benefit the majority of Americans significantly.
With that in mind, let us examine the other factors. Our corporate tax rate is not higher than that of other countries, according to Forbes. The magazine’s researchers argue that while our rate is roughly 10% higher than other countries in theory, our tax code has so many deductions that our functional corporate tax is similar to most developed countries.
The last consideration I’ll include before deciding whether or not I believe we should lower our corporate tax is whether 35% is a historically high number for the United States. If so, this could potentially have the negative effect of making businesses feel that their country is out to squeeze them, since this isn’t a time of crisis or war that necessitates spiked taxation. However, there is fairly little reason to be concerned by this concept, because the current 35% is a lower top corporate income tax rate than the U.S. has had since 1941, with the exception of the years 1988-1992, when George H.W. Bush’s budgets brought about massive deficits by increasing the intensity of Ronald Reagan’s supply side/trickle down economics hypothesis.
It’s obvious that our corporate tax rate is not absurdly high or causing most large corporations to flee our shores. If we lower it, the effects will probably hurt most working people more than it will help them. Tax reform — one which broadens and diversifies our revenue base — is an important cause, but Donald Trump has chosen a poor method by which to attempt “reform,” if you can call it that. His 15% proposal on top corporate income isn’t so much a reform as a kickback to what are already the most powerful and well-connected corporations in the world. It is a kickback that could leave the rest of us eating the resulting deficits.