The Democrat’s schemes to raise the U.S. corporate tax rate to 28%, championed by Vice President Kamala Harris and many congressional Democrats, is part of a broader effort to get more money from businesses.
This is a 33% tax hike on consumers and workers in totality. However, this initiative would unintentionally undermine America's global competitiveness, particularly in the context of our position in the world economy.
As the United States represents just 4% of the global population, it is critical for our nation to maintain a favorable environment for businesses to export goods and services globally. This is especially pertinent given that approximately 35-40% of large international USA company revenues are derived from international markets.
The stakes are high, not just for corporations but for the average American worker and consumer as well.
The Global Corporate Tax Landscape and Offshoring
Globally, the United States competes with 195 other nations, many of which have significantly lower corporate tax rates and government burdens. These nations offer more favorable conditions for businesses to operate, attract investment, and generate employment. If the U.S. corporate tax rate increases to 28%, it risks making American companies less competitive on the global stage.
High corporate tax rates increase the cost of doing business, incentivizing corporations to shift operations and investments offshore where tax burdens are lighter. This can lead to decreased domestic production, job losses, and stagnating wages in the U.S.
Countries such as Ireland, with a corporate tax rate of 12.5%, have successfully positioned themselves as attractive hubs for multinational corporations. In contrast, a higher U.S. corporate tax rate could deter foreign investment and encourage American firms to relocate production abroad, ultimately affecting their ability to export competitively.
As global trade continues to expand, it is crucial that the U.S. remain a favorable environment for multinational corporations and exporters.
Overall, the corporate tax burden is passed down to union workers, teachers, and minorities who get hit hardest by city, state and federal governments taking more than their fair share from workers and companies moving jobs offshore causing layoffs and unemployment. In many cases, workers now own stock in their companies; thus, corporate burdens imposed by governments hit all workers ability to succeed and retire in the 21st century.
The Burden on Workers and Consumers
Contrary to the notion that higher corporate taxes only affect corporations and their shareholders, research consistently shows that these taxes have broad ripple effects throughout the economy. The nonpartisan Tax Foundation has released several reports outlining the negative consequences of raising the corporate tax rate on American workers and families.
Their analysis highlights that a 28% corporate tax rate would reduce wages by nearly $600 per worker annually. In some states, average wage losses could exceed $700, resulting in a nationwide wage loss of up to $81 billion per year. Over a decade, this amounts to nearly one trillion dollars in lost wages for American workers.
Furthermore, higher corporate taxes lead to increased consumer prices, which directly impacts the average American household. According to studies, as much as half of corporate tax burdens are passed on to consumers in the form of higher prices for goods and services.
With household budgets already stretched thin due to inflation and rising living costs, additional price hikes would further strain family finances.
The Inflation Impact on Workers, Teachers, Unions and the Poor
Taxes not only burden corporations and workers, but they also increase the overall cost of living and running the government funding essential infrastructure such as roads, bridges, schools, and hospitals. When taxes rise, the government must allocate more resources to cover its own operational expenses, which drives up the cost of public projects.
While contractors normally could have provided the roads and bridges at a better price or bid, if you raise corporate taxes, that forces the contractors and government bidders for jobs to raise their rates for products and services provided to taxpayers. Thus, an ugly circular cycle of inflation is artificially produced.
This creates a cycle of artificial hyperinflation, as the higher tax burden trickles down upon consumers and taxpayers in the higher cost of goods and services. For example, when taxes increase, construction companies building roads or schools face higher costs, which are ultimately passed on to taxpayers through higher prices and higher state and city taxes too.
This inflation disproportionately impacts low-income individuals, who already struggle with the cost of basic necessities such as food, gas, utilities, diapers, and housing. As the price of these essentials rises due to the indirect effects of higher taxes, the minorities and poor face greater financial hardship, making it harder to make ends meet. In this way, tax increases can exacerbate inequality, harming the very people they aim to protect.
The Impact on Retirement Savings and Pensions
Another significant concern tied to higher corporate tax rates is the potential reduction in investment and retirement savings along with dividends to those on a fixed retirement. A substantial portion of Americans and retirees, around 61%, own stock, primarily through retirement accounts such as 401(k)s and IRAs. When corporate tax rates rise, the after-tax profits of companies decrease, which in turn reduces returns on investments.
As a result, average households and retirees see smaller dividends and returns on their retirement savings, directly affecting long-term financial security. In the end, if a worker or retiree does not have income or assets, they go on public assistance or disability costing taxpayers even more money.
With more than half of the U.S. population invested in the stock market through retirement accounts, the repercussions of a higher corporate tax rate are far-reaching. As the Tax Foundation notes, raising the rate to 28% would be "a costly mistake," with workers and consumers bearing much of the burden over the long run.
Lower wages, higher prices, and diminished retirement savings collectively reduce the economic well-being of American families and the security of the nation. Keeping the corporate taxes lower is the only way to keep workers and union members with respectable salaries, benefits and insurance.
The Role of Unions in Negotiating Corporate Tax Policies
In the current economic climate, unions play a critical role in advocating for workers’ rights, salaries, and benefits. However, as corporate tax policies increasingly affect workers' wages and job security, unions may need to broaden their focus and negotiate with the government on rules, regulations, tax rates and benefits.
Traditionally, unions have negotiated directly with employers, but given that the government controls tax rates and regulations, which significantly influence business costs and worker compensation, government has become the key stakeholder in this discussion in this decades long debate.
The reality is that many stakeholders — suppliers, shareholders, and workers—have already made considerable sacrifices to keep companies profitable. Increasing corporate tax rates only adds pressure to these already strained groups.
The government, as the regulator of corporate tax and import/export policy, is the only remaining stakeholder that has the power to alleviate some of these burdens by ensuring that tax rates do not hinder companies’ ability to compete globally or compensate workers fairly.
Raising Taxes Will Stop Repatriation of Revenues
Raising the corporate tax rate from 21% to 28% could significantly discourage the repatriation of foreign-earned revenues by U.S. companies. Repatriation refers to the process by which corporations bring their overseas earnings back to the United States. Historically, high corporate tax rates have been a barrier to repatriation, as companies prefer to keep their profits in lower-tax jurisdictions to avoid heavy taxation.
One of the key objectives of the 2017 Tax Cuts and Jobs Act (TCJA) was to lower the U.S. corporate tax rate to 21%, making the U.S. tax environment more competitive globally and encouraging multinational companies to repatriate their earnings back to the USA. The result was a significant inflow of over $1 trillion of funds back to the U.S. as companies sought to take advantage of the lower tax burden. By raising the corporate tax rate back to 28%, companies may once again be incentivized to leave their profits in foreign subsidiaries or reinvest them abroad, rather than bringing the money back to the U.S.
Conclusion
Raising the U.S. corporate tax rate to 28% might seem like a step toward ensuring big corporations "pay their fair share." However, the unintended consequences of such a move could significantly harm American workers, families, teachers, union members, and the overall economy.
As businesses face higher taxes, they will likely reduce wages, increase consumer prices, and lower returns on retirement savings. In a global marketplace, where the U.S. competes with 195 other nations, maintaining a competitive tax environment is crucial. Furthermore, unions must recognize the importance of engaging with government officials to address corporate tax and benefit policies, ensuring that workers’ interests are protected. It seems that while President Trump was in office, he was one of the few in modern history that understands workers, contractors and middle class economic issues.
Amazon Founder Jeff Bezos once said “your margin is my opportunity”. This means, if the USA raises tax rates, foreign nations will be able to undercut and beat the USA with cheaper products and services and thus, put US businesses and workers into Bankruptcy without any effort.
Before the 2017 tax reforms under the Trump administration, the USA had one of the Worst corporate tax rates globally, at 35% for federal corporate income tax, which placed it among the highest in the world. After Trump’s 2017 Tax Cuts and Jobs Act (TCJA), the federal corporate tax rate was reduced to 21%, significantly improving the overall USA ranking.
This reduction moved the U.S. corporate tax rate closer to the global average in the mid-range corporate tax rates. By 2018, the U.S. was no longer ranked among the highest but was more competitive globally, ranking approximately 83rd out of 195 nations, based on corporate tax rates.
The combination of high interest rates with higher corporate tax rates could cause a major recession and even a depression. When you mix the tax burden of interest rate hikes on autos, homes, credit cards, and student loans, you basically hit 100 million Americans with a much larger debt burden robbing consumers of their money to spend locally on anything other than overpriced rent, mortgages, utilities, and food.
In sum, the nonpartisan Tax Foundation's reports make it clear: raising the corporate tax rate would be a costly mistake that affects all Americans with even more inflation and job losses in an economy that is already hurting, particularly the very workers and families it seeks to help.
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Commissioner George Mentz JD MBA CILS CWM® is the first in the USA to rank as a Top 50 Influencer & Thought Leader in: Management, PM, HR, FinTech, Wealth Management, and B2B according to Onalytica.com and Thinkers360.com. George Mentz JD MBA CILS is a CWM Chartered Wealth Manager ®, global speaker - educator, tax-economist, international lawyer and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a EU accredited graduate body that trains and certifies professionals in 150+ nations under standards of the: US Dept of Education, ACBSP, ISO 21001, ISO 991, ISO 29993, QAHE, ECLBS, and ISO 29990 standards. Mentz is also an award winning author and award winning graduate law professor of wealth management of one of the top 30 ranked law schools in the USA.
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