- Raising taxes on corporations is often sold as an easy way to fund helpful government services, but the reality is that increasing the corporate income tax hurts the very people those services are meant to help.
- That’s because the businesses that physically pay the corporate income tax bill (what’s called legal incidence) aren’t the only ones bearing the economic burden (or economic incidence) of the tax.
- Corporate income taxes make it more expensive for businesses to invest in technology and equipment that can increase efficiency, produce more product breakthroughs, and generate higher revenue – all things that enable companies to increase wages through raises, bonuses, and promotions, and to create new jobs.
- Studies show that higher corporate taxes reduce wages most for young workers, the low-skilled, and women, groups that already face significant barriers to working, like limited transportation or high childcare costs.
- Many economists, including those at the Organisation for Economic Co-operation and Development (OECD), agree that the corporate income tax is one of the most harmful and least efficient ways to fund our priorities.
Raising the corporate income tax is often promoted as a way to generate revenue for helpful government services.
Unfortunately, higher corporate taxes typically hurt the very people they’re supposed to help, because they lead to lost wages and fewer opportunities for many workers.
Consider this hypothetical example:
Imagine a business in the early 2000s considering moving part of their workforce from desktop computers to laptops.
Their investment pays off in multiple ways:
Field engineers who used pen and paper and then had to re-enter data and reports on desktops back in the office, were instantly more productive.
Other workers gained the freedom to work from home. This boosted performance and increased job satisfaction.
The company could also now hire remote workers in other cities and attract more talent.
All of these gains led to greater efficiency, product breakthroughs, and higher revenue – which in turn enabled the company to increase wages through raises, bonuses, and promotions, and to create new jobs.
Now, imagine the corporate income tax is raised and the investment is no longer viable for the company.
All of the productivity and innovation gains then go unrealized, and workers lose out on those increased wages and opportunities.
This same story would play out in different ways for all types of companies and workers throughout the economy.
This is the problem with raising the corporate income tax – workers may benefit from the government services they provide, but they also experience real economic harm.
And studies show that higher corporate taxes reduce wages most for young workers, the low-skilled, and women.
Many in these groups already face significant barriers to working, like limited transportation or high childcare costs, which, when coupled with lower wages, can make it unaffordable to work at all.
Many economists agree that the corporate income tax is one of the most harmful and least efficient ways to fund our priorities.
Taxes are necessary to pay for government services. But they shouldn’t come at the cost of the people who those services are supposed to help.