Vice President Kamala Harris is advocating for a significant increase in the federal corporate income tax rate, proposing a hike from the current 21% to 35%. This proposed rate surpasses even socialist Venezuela’s 34% and is notably higher than President Biden’s suggested 28%. Should Harris’ plan come to fruition, the United States would face one of the highest corporate income tax rates globally, aligning with communist Cuba and exceeding Communist China by ten points.
Implications of a 35% Corporate Tax Rate
When state corporate income taxes are factored in, the combined federal-state rate under Harris’ proposal would approximate 39%. This would place a substantial tax burden on American employers, potentially disadvantaging them compared to international competitors. During her previous presidential campaign, Harris emphasized the necessity of increasing the corporate tax rate, stating unequivocally, “We’ve got to increase the corporate tax rate.”
Harris’ plan aligns with her consistent stance on repealing the 2017 Trump tax cuts, effectively reinstating a 35% corporate tax rate under her leadership. However, this increase could have significant repercussions for American workers.
Impact on American Workers
The non-partisan Joint Committee on Taxation (JCT) has highlighted that corporate tax rate hikes predominantly affect labor. JCT Chief of Staff Thomas A. Barthold testified before the House Ways & Means Committee, citing literature that suggests 25% of the corporate tax burden may be borne by labor through diminished wage growth.
Stephen Entin of the Tax Foundation estimates that workers bear approximately 70% of the corporate income tax burden. In 2017, he wrote that empirical studies indicate an inverse correlation between corporate taxes and wages and employment. These studies suggest that labor bears between 50% and 100% of the corporate income tax burden, with 70% or higher being the most likely outcome.
A 2012 Harvard Business Review article by Mihir A. Desai supports this view, noting that raising the corporate tax directly impacts American workers, leading to a decline in real wages. Additionally, a study conducted by Wiji Arulampalam, Michael P. Devereux, and Giorgia Maffini at the University of Warwick and University of Oxford found that a $1 increase in corporate tax reduces wages by 92 cents in the long term. This study analyzed over 55,000 businesses across nine European countries from 1996 to 2003.
Even the left-of-center Tax Policy Center estimates that 20% of the corporate income tax burden is borne by labor. As discussions around corporate tax rates continue, it is crucial to consider these implications for both businesses and workers alike.
