Consequences of a Higher Corporate Tax Rate: 1 Million Jobs Lost in First Two Years
Timmons: “America can’t afford that, especially now.”
Washington, D.C. – The National Association of Manufacturers released a new study detailing the short- and long-term damage to the American economy under tax proposals to increase the corporate tax rate and repeal policies that made manufacturing in America more competitive around the world.
“Manufacturers want to help President Biden achieve his goal of creating jobs in America and strengthening the supply chain so that our country does not face critical shortages, especially during times of national crises.
“As we slowly emerge from the economic catastrophe caused by COVID-19, American businesses are at a pivotal point in our nation’s history. Manufacturers can, and should, lead the economic recovery in the wake of the pandemic. But this study tells us quantitatively what manufacturers from coast to coast will tell you qualitatively: increasing the tax burden on companies in America means fewer American jobs. One million jobs would be lost in the first two years, to be exact,” said NAM President and CEO Jay Timmons.
“After decades of advocating for a tax system that provided competitive rates and modern international tax provisions, manufacturers in America kept our promises following the enactment of the 2017 tax reforms: we raised wages and benefits, we hired more American workers, and we invested in our communities. If we undo those reforms, all of that will be put at significant risk. Manufacturing workers will lose out on jobs, growth and raises. We should be building on that progress, not rolling it back. But the conclusion of this study is inescapable—follow through with tax hikes that give other countries a clear advantage and we’ll see far fewer jobs created in America.”
The study calculated the effects of increasing the corporate tax rate to 28%, increasing the top marginal tax rate, repealing the 20% pass-through deduction, eliminating certain expensing provisions and more. The negative consequences would include the following:
- One million jobs lost in the first two years;
- By 2023, GDP would be down by $117 billion, by $190 billion in 2026 and by $119 billion in 2031;
- Ordinary capital, or investments in equipment and structures, would be $80 billion less in 2023 and $83 billion and $66 billion less in 2026 and 2031, respectively;
- And more.
“There are some who are well-meaning and have suggested that the U.S. corporate tax rate should increase, but not by as much as the 28% proposed. Unfortunately, what that means is that America will still lose jobs and investment, just not quite as much. America just can’t afford that, especially now,” Timmons said.
Click here for a summary of the study’s details and findings. Read the full study, “Dynamic Estimates of the Macroeconomic Effects of Tax Rate Increases and Other Tax Policy Changes,” conducted by Rice University economists John W. Diamond and George R. Zodrow,” here
Background on manufacturing growth following the enactment of tax reform in 2017:
- In 2018, manufacturers added 263,000 new jobs. That was the best year for job creation in manufacturing in 21 years.
- In 2018, manufacturing wages increased 3% and continued going up—by 2.8% in 2019 and by 3% in 2020. Those were the fastest rates of annual growth since 2003.
- Manufacturing capital spending grew by 4.5% and 5.7% in 2018 and 2019, respectively.
- Overall, manufacturing production grew 2.7% in 2018, with December 2018 being the best month for manufacturing output since May 2008.
Manufacturers strongly support President Biden’s focus on bold infrastructure investment, which can be achieved through a combination of revenue sources like those identified in the NAM’s ‘Building to Win.’
The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.3 million men and women, contributes $2.32 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 63% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org