Caroline L. Harris
Former Vice President, Tax Policy & Economic Development, Former Chief Tax Policy Counsel


January 27, 2021


The current Administration has minced no words about its goals to increase taxes, including raising the 21% corporate rate to 28%. We worked for 31 years before finally achieving tax reform that, among other things, lowered the corporate tax rate to a level that made us not only competitive in the global economy, but made it attractive to do business here. It is imperative that we preserve this competitive rate, which was enacted to enable American businesses to compete successfully in the global economy, to attract foreign investment to the United States, to increase capital for investment, and to drive job creation in the United States.

Before we talk about the detriments of raising the corporate rate, let’s consider how we achieved this rate reduction. To achieve a 21% rate, American businesses accepted certain tax increases, or base broadeners (such as less favorable interest deductibility rules, more limited use of net operating loss rules, and less favorable treatment of R&D expenses), to help offset the cost of that cut. In other words, the 2017 tax reform was reform, not simply tax cuts. These broadeners would have raised businesses' taxes, absent the rate reduction. A broader base is good, but it must be coupled with a lower rate. Otherwise, it is a tax increase. And increasing the tax rate here, where the base is much broader than before tax reform, is much more damaging than under the old base. And what is that damage?

Raising the corporate rate would derail economic recovery since higher corporate income taxes harm economic growth and, ultimately, hurt workers.

There is bipartisan agreement, from President Obama to Chairman Grassley, that an economic downturn is not the time to raise taxes. Even Secretary Janet Yellen last week indicated that tax increases should not be discussed until the United States has overcome the coronavirus. However, while also acknowledging that corporate tax cuts improved the competitiveness of U.S. businesses, what Secretary Yellen further said was that U.S. can afford a higher corporate tax rate if it coordinates with other countries. I beg to differ.

Corporate income taxes are the most harmful for economic growth. Further, the burden of corporate taxes falls most heavily on workers. High corporate tax rates divert investment away from the corporate sector, curtailing investment that would raise the productivity of American workers and increase those workers’ real wages. Studies estimate that labor likely bears about 70% of the burden of the corporate income tax. In other words, raising the U.S. corporate tax rate is a bad idea at any time given its impact on growth and real wage levels. Undertaking this worldwide to globally slow growth and lower real wages is simply a bad idea on a larger scale. Further, country’s tax bases are different – as noted above, rate changes have different impacts on different tax bases. And we’ve seen how attempts to create a common consolidated corporate tax base have fared – just ask our friends in the EU who have been trying to do it since 2011.

Raising the corporate tax rate would make our tax system less competitive.

The current U.S. combined statutory corporate tax rate is 25.9% (21% federal corporate income tax rate plus a 4.9% average state corporate income tax rate). This rate is still above the worldwide average combined corporate income tax rate, measured across 177 jurisdictions, of 23.85%, and the OECD rate of 23.5%. In fact, raising the 21% rate to 28% would give the United States the highest combined corporate tax rate in the OECD. This is not how we want America to be #1.

So how do we stack up in terms of competitiveness? On the Tax Foundation’s International Tax Competitiveness Index (ITCI), the United States ranks 21st out of 36 countries on overall competitiveness, a jump from the 28th ranking prior to tax reform, and 19th on corporate taxes, down from 35th before tax reform. Raising the 21% rate to 28% would cause the United States to drop from 21st to 30th on overall competitiveness, a position even lower than before tax reform, and to fall to 33rd on corporate taxes. This is not the direction we want to be heading.

Raising the corporate rate makes the United States a less attractive place to invest profits and locate corporate headquarters.

A higher corporate tax rate would discourage investment of profits within our borders, sending much needed capital – and the jobs that come with it – elsewhere. The most recent BEA data on U.S. multinational activities for the first year after the TCJA, indicates that the TCJA contributed to faster growth at U.S. parent companies for things such as employment and expenditures for property, plant, and equipment (PP&E) and research and development (R&D). This reverses a long-term trend where growth at foreign affiliates outpaced that of U.S. parents. In other words, tax reform played a role in making the United States a more attractive place to do business.

Likewise, a higher corporate tax rate makes it harder for U.S.-based companies to compete globally. Prior to tax reform, some American companies were forced to merge with foreign companies to avail themselves of a lower foreign tax rate; in other words, these companies “inverted,” relocating from the high tax United States to a lower tax jurisdiction. Lowering the corporate rate in tax reform made the United States a significantly more attractive place to be headquartered, virtually eliminating corporate inversion transactions. Raising U.S. tax rates could once again force American companies to invert to remain competitive, taking valuable jobs and capital investment with them.

The bottom line? We worked a really long time to achieve a corporate tax rate that drives growth and job creation, that makes our tax system globally competitive, and that encourages investment within U.S. borders. The last thing we need now, or down the road, is a tax hike that threatens the success of American companies, workers, and the U.S. economy.

About the authors

Caroline L. Harris

Caroline Harris is former vice president, tax policy and economic development, and chief tax policy counsel at the U.S. Chamber of Commerce.