United States House Committee on Ways and Means
Hearing on Expanding on the Success of the 2017 Tax Relief to Help Hardworking Americans
April 11, 2024
On behalf of the 55 million American workers across all 50 states employed by our members and affiliates, the RATE Coalition commends the Committee for its focus on building on the success of the 2017 tax cuts to expand economic growth for all Americans. Since its founding in 2011, RATE has been advocating for a pro-growth tax code that increases economic prosperity for all Americans. We strongly believe that a competitive corporate tax rate is essential to promoting economic growth and prosperity, benefiting working people, families, and American businesses.
The corporate tax rate reduction enacted in 2017 helped spur an economic boom, resulting in increased economic growth, increased investment, higher wages for working families, and more jobs in America. The corporate rate reduction was enormously successful for the U.S. economy, working just as the Committee had predicted.
The corporate rate was reduced from the highest rate in the world to a much more competitive rate. The rate cut increased U.S. competitiveness, brought capital back to the U.S., and ended the practice of U.S. companies moving their operations overseas. Since the rate was reduced, US growth in real GDP has exceeded every other G-7 country, including France, Germany, and the United Kingdom.
A major research paper by the National Bureau of Economic Research confirms that the 2017 tax cuts were successful in boosting investment, wages, growth, and corporate tax revenues. The study found that the corporate tax changes, particularly the corporate rate reduction, increased domestic capital investment by 20% in the two years after enactment.
The economic data and anecdotal information point to significant benefits resulting from the tax relief that was achieved by the Tax Cuts and Jobs Act. These results are why we are firmly opposed to increasing the corporate rate, including the proposal to increase the corporate rate to 28% included in the FY 2025 Administration Budget. Raising the rate to 28% is a 33% tax increase that would have devastating consequences for our workers, families, and businesses, slowing investment and economic growth, and hurting working families and American businesses large and small.
We respectfully disagree with the Biden administration’s claim that the corporate rate cut increased the deficit. In fact, the Joint Committee of Taxation revenue estimates show that most of the rate cut was paid for by other corporate revenue offsets when the bill was enacted. The JCT estimates show that 75% of the rate cut was paid for by corporate tax increases from loophole closings, base broadening, and limits on corporate deductions
The U.S. tax rate would be higher than every other OECD country except Colombia
Increasing the rate to 28% would result in a combined federal-state tax rate of 32.4%, putting U.S. companies at a significant competitive disadvantage against global competitors and increasing the pressure to move jobs and investment overseas. This new U.S. rate of 32.4% would be higher than every other OECD country but one – Colombia. The rate would be significantly higher than the 23.5% average tax rate for the other 37 OECD countries, threatening our ability to compete. Worse still, the increased tax rate would be 30% higher than China’s top rate of 25%.
Also, a U.S. tax increase would mark a reversal of the steps being taken by virtually every other country in the world to reduce their corporate rate. It makes no sense for us to increase our corporate rate and make ourselves less competitive than our international competitors.
Increasing the corporate rate threatens to move jobs and tax revenue out of the U.S.
Since passage of the Tax Cuts and Jobs Act, corporate tax receipts have soared to record high levels. In fiscal 2024, receipts are projected to increase to $520 billion, the highest level ever, up 24% over fiscal 2023, and 145% higher than fiscal 2020. Corporate tax collections as a share of the economy are now higher than the 40-year average. Increasing the corporate tax rate threatens to reverse this progress.
A corporate rate increase could also result in major job losses in American communities. In the two decades before the 2017 tax cuts, nearly one hundred US companies moved to foreign countries to avoid the high U.S. rate. Since the rate was reduced to a competitive level, tax inversions have disappeared. Raising the corporate rate could once again force US companies to consider moving their headquarters and operations overseas.
Increasing the corporate rate will hike taxes for individuals and working families
Study after study has shown that as much as 70% of the burden of a corporate rate increase falls on working families. A Federal Reserve Board study found that a corporate rate increase would be “uniformly harmful to workers.” Other studies have found that a corporate rate hike would have a “significant effect” on prices, with nearly one-third of a corporate tax increase falling on consumers in the form of higher prices.
Studies have also shown that a corporate rate hike would fall on millions of individual taxpayers and working families. A study by the Joint Committee on Taxation shows that 172 million individual taxpayers would bear the burden of a higher corporate rate, with 98% of them with income below $500,000. More than 125 million taxpayers earning less than $100,000 would be hit by a higher corporate tax rate.
Research also shows that a corporate rate increase does not just hit big corporations. Small businesses would be hit by a corporate rate increase. As many as 1.4 million small businesses employing about 13 million employees would be forced to pay a higher rate. According to the NFIB, small employers are c-corps which underscores why a corporate tax hike would be “a disaster for small businesses.”
In conclusion, we urge the Committee to protect the current competitive U.S. rate and reject proposals to raise the U.S. rate. An overwhelming body of economic research shows that a corporate rate increase is the most economically damaging tax increase. The Tax Foundation has forecasted the Biden budget would reduce long run economic output by 2.2%, wages by 1.6%, and employment by nearly 800,000 jobs. They believe the budget would put the U.S. in a distinctly uncompetitive international position and threaten the health of the U.S. economy. Further, they project that raising the corporate rate to 28% would be the largest cause of negative effects on the economy.
We strongly believe that raising the corporate rate would be a major economic mistake, increasing the chances of an economic downturn and economic stagnation. We believe that the competitive tax rate enacted by Congress in the 2017 Tax Cuts and Jobs Act is essential to continued economic growth and prosperity, benefiting working people, families, and American businesses.
