OPINION:
The RATE (Reforming America’s Taxes Equitably) Coalition briefed Capitol Hill this week on the benefits of lowering the federal corporate tax rate. With unemployment remaining at historic highs, it is imperative that policymakers recognize that a significant reduction in the federal corporate tax rate - currently 35 percent - will make our tax system fairer and simpler, boosting domestic employment and economic growth overall. Few Americans realize our corporate income tax rate is the second highest in the industrialized world. In the wake of President Ronald Reagan’s historic 1986 tax reform, the United States had one of the lowest rates. However, in the intervening decades, we have done nothing while our competitors have lowered their rates. The blunt truth is that our corporate tax rate makes us anti-competitive internationally and only exacerbates the economic slump we’ve experienced over the past few years.
It is essential that we reform the corporate tax rate to jump-start the economy - there’s no good reason to wait. Budget analysts and economists who have examined the issue all conclude that reducing the corporate tax rate will spur faster economic growth and create jobs in the United States. For instance, the Heritage Foundation calculates that reducing the corporate tax rate to 25 percent would create an average of 581,000 jobs in the U.S. annually from 2011 to 2020. Similarly, the Milken Institute issued a report demonstrating that reducing the corporate tax rate to 22 percent - the Organization for Economic Cooperation and Development (OECD) average - could boost gross domestic product by an additional 2.2 percent and increase employment by 2.13 million workers. And the Journal of Public Economics argues that reducing the corporate tax rate by 10 percentage points could increase economic growth rates by 1 percent to 2 percent.
But it’s important to remember that this isn’t just an academic issue about economics - this is about the U.S. economy and the 310 million folks who depend on it for their livelihoods. The American people - particularly those in the middle class - would win with corporate tax reform. As the saying goes, “A rising tide lifts all boats.” A quarter-century ago, Mr. Reagan understood the principle that companies succeed and thrive in the high economic growth environment that comes from low tax rates and a simplified tax code. When companies and entrepreneurs are successful, they create more jobs and pay better wages. It’s as simple - and profound - as that.
Today, in the wake of the failure of the congressional supercommittee, we are reminded yet again that strong economic growth needs to be a big part of any solution to the deficit and the debt. So a tax solution that encourages larger economic growth and higher wages will result in our nation getting needed revenue faster in order to lower the deficit sooner. And doing this while expanding the financial budgets of the average American household is a win-win plan.
The Heritage Foundation confirms this plan in a report showing that a typical family of four’s after-tax income would rise, on average, by $2,484 per year with a 25 percent corporate tax rate. A Federal Reserve Bank of Kansas study predicts that each 1 percent decrease in the tax rate would result in a 0.9 percent increase in gross wages. If we lowered the corporate tax rate to the OECD average, U.S. worker wages and benefits will rise some $100 billion to $200 billion a year in the next decade, according to accounting firm Ernst & Young.
A pro-growth jobs agenda is just what the American economy and the American people need. Doing nothing is not an option. Our country’s high corporate tax rate depresses wages and kills economic growth, hurting each of us at the kitchen table and American businesses around the world.
As co-chairman of the RATE Coalition, I’m working with like-minded individuals in Washington and businesses that create jobs all over America. Our mission is to reform our nation’s outdated corporate tax policy and reduce too-high rates in order to put in place a high-growth, job-creating corporate rate.
Such a positive change - pushing the corporate tax rate down to the average of our industrialized competitors, about 25 percent - would better allow U.S. businesses to compete in today’s global marketplace, restore vibrancy to our economy and ensure that the American people have access to the kinds of high paying jobs they deserve. The time to act is now.
James Pinkerton, a former adviser to President George H.W. Bush, is co-chairman of the RATE (Reforming America’s Taxes Equitably) Coalition.
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