Corporate Tax Hike Will Exacerbate Inflation, Hurt Economic Outlook
Real Clear Markets
By fmr. Senator Blanche Lincoln
May 12, 2022
Last week the Federal Reserve raised interest rates by 0.50%, the largest rate hike in more than two decades. At a press conference shortly after announcing the move, Fed Chairman Jerome Powell indicated that the Central Bank is considering additional .50% rate hikes in the coming months.
The Fed’s increasingly hawkish posture speaks to the seriousness of the inflation crisis gripping the American economy. And though these rapid and substantial rate hikes are necessary to curb rising prices, they do come at a cost. Higher rates and less liquidity have historically dampened economic growth.
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After serving nearly two decades in the U.S. Senate and House of Representatives – during both the Dot-Com Crash and the Great Recession – I’ve seen firsthand how ill-conceived policies can severely worsen situations like the one before us today. It is critical for legislative policymakers to set aside partisan ideology and proceed in a deliberate and thoughtful manner. Lawmakers should ensure they are adhering to the time-tested adage of “do no harm.”
That is why I am concerned by renewed attempts to increase taxes on American businesses at this time. In his 2023 Budget proposal, President Biden calls for hiking the federal corporate tax rate from 21% to 28%. Moreover, Senate Majority Leader Chuck Schumer recently suggested that a corporate tax hike is necessary to tamp down surging inflation.
Given the economic headwinds and growing cloud of uncertainty, now is the worst possible time to implement a policy OECD considers ‘the most harmful type of tax for economic growth.’ A corporate tax increase would compound inflation, accelerate the economic slowdown, and yield wide-ranging negative consequences, with American families and workers bearing the brunt of the pain.
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After two long and difficult years fighting this pandemic, we can finally see the light at the end of the tunnel. However, we’d be mistaken to think we are completely out of harm’s way. Inflation is surging at record rates. Interest rates are rising. Consumer confidence is waning, and retailers are struggling to come back from the pandemic.
Make no mistake, the risk of recession is very real. The last thing policymakers should do is pour fuel on the fire by raising taxes on American businesses.
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