Raising The Corporate Tax Rate Is The Most Economically Harmful Tax Increase

Congressional Democrats are proposing to increase the U.S. corporate tax rate to one of the highest in the world. Raising the corporate rate would be a major economic mistake, harming working people, American businesses, and the U.S. economy.

An overwhelming body of economic research shows that increasing the corporate tax rate is the most economically damaging tax increase, hurting American incomes and jobs. Study after study shows that raising the corporate tax rate would be harmful to economic growth, resulting in lower investment, higher prices, lower wages, and fewer jobs.

The economic research on the negative effects of a higher corporate rate is extensive and compelling. Nearly every OECD country reduced their corporate rate in recent years after a comprehensive OECD study examining data from 63 countries concluded that a higher corporate rate is the most harmful to a country’s growth and ability to compete.

More recently, three nonpartisan economic research groups have released studies comparing the economic impact of a corporate rate increase with other tax increases. All three studies found that raising the corporate rate is the worst tax to increase.  

• The Tax Foundation compared the cost to the economy of different types of tax increases to help offset the budget cost of extending the 2017 tax cuts. The study found that “dollar for dollar, raising the corporate tax rate is significantly more economically harmful” than other types of tax increases. Their model showed that the negative impact of a corporate rate increase on real GDP is more than two to three times greater than other revenue offsets.

• The Penn Wharton Budget Model analyzed three options to reduce deficits and debt and found that raising individual and corporate tax rates would do the most damage to the economy and do little to reduce the debt. The budget model found that the higher tax rates, including a higher corporate tax rate, result in a long term drop in economic growth, a lower capital stock, and stagnant wages, leading to an “economic decline.”

• The Economics Observatory, a UK economic research group, has released a paper examining the best and the worst tax increases for economic growth. The paper concludes that from a growth perspective, the “worst tax to increase would be the corporate tax rate.” The group found that a rise in the corporate rate would cause a “severe and negative fall in GDP,” leading to lower productivity, higher inflationary pressures, and deteriorating economic circumstances in the long run.

These and numerous other studies show that raising the corporate rate would have devastating consequences for our economy, working families, and our ability to compete abroad. A higher corporate rate would have severe negative effects on the U.S. economy, families, and companies, and it is the last thing Congress should do in the current economic environment of slower growth and higher prices.