Field Hearing on The Success of Pro-Growth, Pro-Worker Tax Policy in the American Midwest

August 16, 2024

On behalf of the 55 million workers across all fifty states employed by our members and affiliates, the RATE Coalition is pleased to submit this written testimony to the Committee’s field hearing on the success of pro-growth, pro-worker tax policy in the American Midwest. We commend Chairman Smith and the Committee for visiting Iowa to highlight the positive impact and importance of the Tax Cuts and Jobs Act for American families, farmers, workers, and small businesses. Since our founding in 2011, RATE has been advocating for a pro-growth tax code that increases economic growth and prosperity for all Americans.

We are confident this hearing will show the Committee the positive impact of the 2017 tax cuts, particularly the lower corporate tax rate, are having on local communities in Iowa. The Committee will receive testimony from a local company which built a new plant which has greatly benefited the working families, farms, and small businesses of the local communities in northeast Iowa.

We strongly believe that a competitive corporate tax rate is essential to promoting economic growth and prosperity, benefiting working families, farmers, and American businesses. Raising the corporate tax rate would have a devastating impact on working families, consumers, farmers, and American businesses, reducing economic growth and investment, threatening American jobs, and harming our ability to compete abroad.

According to the Committee’s report on the 2017 bill, Congress enacted the 21% rate to ensure the U.S. would be “globally competitive with our international competitors.” At that time, the U.S. had the highest corporate tax rate in the world, harming our economy and forcing investment and jobs overseas. The 21% rate has been enormously successful. In the two years after enactment, economic growth surged, household income increased at a record pace, and unemployment fell to a 50-year low. A recent NBER study found that capital investment increased by 20%.

The Biden-Harris administration is pushing to raise the corporate tax rate to 28%, increasing the combined federal-state tax rate to 32.4%, higher than every other OECD country but one. Numerous studies have shown that raising the corporate rate would harm economic growth, investment, and family incomes. A higher corporate rate would hit American job creators large and small. One study found that more than one million small businesses would be hit by a higher corporate rate, causing a “disaster for small businesses.”

A recent Tax Foundation study found that “raising the corporate tax rate is significantly more economically harmful “than any other tax increase. Economic research has shown that raising the rate would have a harmful effect on working families, lowering their wages and incomes, increasing the prices they pay, and reducing their retirement savings. A Federal Reserve Board study found that a corporate rate hike would be “uniformly harmful” to working people, leading to “significant reductions in their jobs and income.”

Further, studies by the Joint Committee on Taxation and the Treasury Department show that a corporate rate increase would raise taxes on millions of taxpayers, with more than one-third of the higher taxes falling on households with income less than $300,000. The Treasury study shows that 35% of the tax increase from a 28% corporate rate — more than $500 billion—would be borne by families making less than $300,000 a year.

Increasing the corporate rate would put US companies at a competitive disadvantage against our global competitors. In the last two decades, most of our foreign competitors have reduced their corporate tax rates, recognizing the damage high rates do to their economy and their ability to compete. Europe’s average tax rate is now 19.9%, lower than the current U.S. combined rate of 25.8%. Asia’s average rate is 19.8%. Even Sweden and the other Nordic countries have lower rates, averaging 20.5%. China has reduced its tax rates to as low as 10% and 15% on industries critical to establishing supply line dominance over the U.S.  Any increase in the U.S. rate would put U.S. firms at a real disadvantage over foreign competitors. Even a 25% rate (a combined rate of nearly 30%) would put the U.S. rate higher than 32 of 37 OECD countries and be nearly 50% higher than the average European and Asian corporate rates.

Raising the corporate tax rate would bring back tax inversions, which had led to the loss of American jobs and tax revenue, and devastated U.S. communities. In the two decades prior to the 2017 rate cut, nearly one hundred U.S. firms moved to foreign countries to avoid the high uncompetitive U.S. rate. Since the rate was reduced, tax inversions have disappeared and not one company has moved overseas.

While some claim that the lower corporate rate increased the deficit, corporate tax revenues have soared to record high levels. According to the CBO, corporate tax receipts in fiscal 2024 are projected to reach $525 billion, the highest level ever, and more than double corporate tax revenues are in 2020. Estimates show that federal revenues are growing at a much faster rate than CBO projected before and after the tax cuts passed in 2017. This year’s CBO forecast shows that projected revenue for the ten-year period after 2017 is now $1.7 trillion higher than CBO projected after the tax cuts passed. Also, studies suggest that a higher corporate rate would lose not gain federal revenue. A higher rate would reduce economic growth and incomes and result in substantially lower federal revenue.

In conclusion, we urge the Committee to protect the current competitive U.S. rate and reject any proposal to raise the U.S. rate. Raising the corporate tax rate would be a major economic mistake, increasing the chances of an economic downturn and threatening American investment, wages, and jobs. We look forward to working with you to enact pro-growth policies that benefit working families and American businesses and increase economic growth and prosperity.