The coronavirus pandemic revealed the United States’ reliance on foreign manufacturers and supply chains. At the peak of the crisis, shelves were empty of critical and everyday items, including masks, cleaning products, medications, and food and household goods. As the virus subsides and Americans return to a sense of normalcy, shortages persist as facilities here and abroad operate below full capacity and shipping ports remained backlogged.
To ensure our country is prepared for the next crisis, it is important that lawmakers use every policy available to support and restore American manufacturing. That should start with ensuring the U.S. tax code positions industry to compete globally and encourages investment, job creation and economic growth.
Congress and the White House made significant progress in 2017 by reducing the U.S. federal corporate rate from 35 percent — then the highest in the industrialized world — to 21 percent. U.S. companies repatriated over $876 billion from overseas within two years of the reduction. National unemployment reached the lowest level in nearly 50 years.
Today, West Virginia’s combined federal and state corporate tax rate is 26.1 percent. While that is still higher than the average among developed countries, 23.4 percent, it is enough aligned to encourage businesses to invest, hire and grow here.
That could change. While our leaders in Washington, D.C. grapple over how to pay for the bipartisan infrastructure proposal, it is imperative decision makers keep in mind that West Virginia’s combined corporate tax rate is already more than nine-points higher than the OECD (Organization for Economic Cooperation and Development) average and more than 7.5-points higher than China. Any suggestion of a tax hike would put West Virginia businesses at a disadvantage.
Saddled with a greater tax burden, companies would have less capital to invest in workers, new jobs, equipment and technology. Productivity and growth would suffer, which could cause an economic slowdown. In fact, a 2008 study by the OECD found high corporate taxes are the “most harmful for growth.”
Some leaders inside the Beltway have suggested the tax increase would narrowly affect businesses. In truth, it will mostly get passed onto workers in the form of reduced wages, fewer jobs and career advancement opportunities, and less investment in training and programs. A report by the Tax Foundation finds that 70 percent or more of corporate taxes are borne by laborers.
Some lawmakers, perhaps realizing the impact of such a significant tax hike, have proposed a compromise of raising the corporate rate to 25 percent, versus the White House’s 28 percent. While this may be a “lesser of two evils,” the outcome will be similar — less investment, reduced productivity and more jobs shipped overseas.
Research by the National Association of Manufacturers shows raising the corporate rate to 25 percent would cause one million American jobs to be lost within two years. Companies would need to cut capital investment by $70 billion over the same period. National GDP would fall by about $107 billion.
A couple of months ago, President Biden pitched the corporate tax increase as a way to make businesses “pay their fair share.” Absolutely, we need to hold companies accountable for what they owe. Unilaterally raising rates won’t level the playing field; it will only put honest business owners and workers further behind. Fixing the problem requires closing loopholes in the tax code, which will create greater parity and generate significant revenue.
I urge West Virginia’s Congressional delegation—Senator Joe Manchin, Senator Shelley Moore-Capito, Representative David McKinney, Representative Carol Miller and Representative Alex Mooney— to stand with our businesses, manufacturers and workers by opposing any increase to the U.S. corporate tax rate.
— West Virginia Senator Chandler Swope, R-Mercer, represents District 6. He serves as Chairman of the Senate Economic Development Committee, Vice-Chairman of the Government Organization Committee and Vice-Chairman of the Transportation and Infrastructure Committee.