08/29/2024
The Corporate Tax Rate Tug-of-War
US competitiveness: Depending on the outcome of the 2024 election, the US corporate tax rate could soon be in for a change, and that could have significant implications for businesses planning future domestic investments.
• The current 21 percent rate, set by the 2017 Tax Cuts and Jobs Act (TCJA), brought the US in line with other industrialized nations after years of being the highest.
Different directions: The rates under consideration by Trump (20 percent or 15 percent) and Harris (28 percent, previously 35 percent) would have vastly different effects on the economy.
Damage per dollar: A higher corporate tax rate would raise revenue but come at a high price of lost economic output, investment, and wage growth.
• Under a 28 percent corporate rate, that by 2034, for every $1 of higher revenue on a conventional basis, GDP would fall by $1.84.
Studies have shown that the corporate tax is the most harmful tax for economic growth, and recent analyses confirm the benefits of reducing the corporate tax, finding that the 2017 reform significantly boosted domestic investment.
Big picture: Lawmakers looking to raise revenue should instead eliminate wasteful tax expenditures and broaden the tax base. Further changes to the corporate tax should improve incentives to invest and innovate, which is best accomplished by cost recovery improvements.
