For most of the last decade, the idea of lowering America’s corporate tax to an internationally competitive level was a bipartisan cause. And that made good sense, because both parties have an interest in widely shared economic growth.
Yet at the beginning of the last decade, the U.S. corporate tax rate stood at 35 percent, this at a time when the average corporate tax rate of advanced economies was around 24 percent. Indeed, when Japan lowered its corporate tax rate in 2015, the United States had the dubious distinction of being burdened by one of the highest rates in the world.
The realization that America’s too-high tax rate was problematic began to crystallize when corporations began “inverting”— that is, switching themselves out of the United States and into another country, often while being swallowed up by a foreign corporation. Such actions were damaging to our economy and demoralizing to our nation. And so Sen. Ron Wyden (D-Ore.) teamed up with then-Sen. Dan Coats (R-Ind.) to unveil the The Bipartisan Tax Fairness and Simplification Act of 2011, which, among other provisions, brought the corporate tax rate down to 24 percent.
In that same year, 2011, a new group was formed, the Reforming America’s Taxes Equitably Coalition, co-chaired by Elaine Kamarck, a Democrat who had served in the Clinton White House, and by myself, a Republican who had served in the Reagan and Bush 41 White Houses. RATE’s mission was to encourage lawmakers to hammer out a bipartisan compromise, one that would lower the rate to match our international competitors while allowing for other reforms that might have been needed to secure the lower rate. We fondly recalled the broadly bipartisan votes in favor tax-rate reductions in 1964 (signed into law by a Democratic president, Lyndon Johnson) and again in 1986 (signed into law by a Republican president, Ronald Reagan); we hoped that such bipartisan magic could happen again.
Indeed, the following year, the goal of lowering the corporate rate became an area of agreement during the 2012 presidential campaign, when Democrat Barack Obama faced GOP challenger Mitt Romney. In their first presidential debate, held in Denver on October 3, 2012, President Obama declared, “Gov. Romney and I both agree that our corporate tax rate is too high. So I want to lower it, particularly for manufacturing, taking it down to 25 percent.” The two leaders still had their differences, and yet they both agreed on the importance of lowering the corporate rate.
Yet unfortunately, as the decade went by, the bipartisan momentum behind the corporate rate-cut fell victim to gridlock and rancor. And so when the Tax Cuts and Jobs Act, taking the corporate rate down to 21 percent, was signed into law in December 2017, it was on the basis of a mostly party-line vote in Congress.
Still, the impact of the lower corporate rate has been salutary; prior to the COVID-19 pandemic, the economy had been surging, and unemployment had been falling to historic lows. It dipped down to 3.5 percent in late 2019, the lowest rate in half a century.
Yet now, as we approach another presidential election, some voices call for undoing this progress. Most notably, Joe Biden has said that he wants to raise the corporate rate to 28 percent. Yet this would be an economic and geopolitical mistake, since it would raise the U.S. rate above that of China, which is 25 percent. During these past three years, we’ve made a lot of progress in “re-shoring” jobs and productivity from China back to the United States; it would be a shame to abandon that progress by burdening American companies with a disadvantageous rate.
Moreover, the average corporate tax rate of all the most developed countries (the 37 members of the Organization for Economic Cooperation and Development) is 23.59 percent. So today, thanks to our 21 percent rate, we are ahead of many, but not all, of our OECD rivals.
And now, as both parties strive to help America recover from the pandemic, we will need as much capital, and as many jobs, as we can get, right here in our own country. So this is no time to start raising taxes on job creation and capital formation.
With this protective, pro-competitive mission in mind, the RATE Coalition has come back into existence. We will be making the same case in this decade that we made in the previous decade: American workers, American employers, and American families can’t afford an uncompetitive tax system.
James P. Pinkerton, a veteran of the domestic policy offices of Presidents Ronald Reagan and George H.W. Bush, is the co-chair of the RATE Coalition.
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