Costs are passed on to consumers. If you work for and invest in companies, you get hit three times.
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In his call for Congress to repeal the 2017 tax cuts and increase corporate tax rates, President Biden asked: “Are we going to continue with an economy where the overwhelming share of the benefits go to big corporations and the very wealthy?” Rep. Richard Neal, ranking Democrat on the House Ways and Means Committee, said that extending the tax cuts will do nothing but fill “the pockets of venture capitalists and some business owners.” President Obama’s top economist, Austan Goolsbee, said that debates over who pays the corporate tax are “an argument about whether making corporations pay more income taxes would trickle down into lower workers’ wages.”
But as John Adams once said, facts are stubborn things. Seven years into the weakest recovery in postwar history, as the economy slumped toward a recession, the 2017 tax cuts and the Trump administration’s regulatory relief sent real median household income soaring by $5,220 in 2019. That’s 49% higher than the previous highest annual gain in 2015 and 11 times the average percentage gain over the previous 50 years. Real median income rose more in inflation-adjusted dollars in 2019 alone than during the entire Obama recovery from 2009-16. The poverty level plunged at the fastest rate since 1966, to the lowest level since the Census Bureau started collecting the data in 1959.
The lowest income quintile saw its average real income rise by 9.4% in 2019, the year after the tax cut took effect. The second quintile (7.4%), middle quintile (6.9%) and fourth quintile (7.8%) all experienced the largest annual income growth in more than a half-century, and the top quintile (7.2%) had its second-highest income growth. The poverty rate in 2019 was the lowest ever recorded for every category, including individuals, families, unmarried women, blacks, Hispanics and children.
Since the Census Bureau doesn’t count refundable tax credits as income for the recipients or count the effect of any other tax change in measuring household income, none of these income gains and poverty reductions had anything to do with the increased child tax credit. Economic growth was almost entirely responsible. It’s still a free country, and critics can say whatever they want about the 2017 tax cuts knowing the mainstream media will let them get away with it. But they can’t change the facts. No federal spending or tax policy change in the past 50 years was followed by as large an increase in real median household income or as big a drop in the poverty rate as the Trump tax cuts.
Everyone expected that the owners of American public companies would benefit—and they did. The stock market surged in 2017 in anticipation of the tax cuts and, in 2018 and 2019, in response to them. Who owns American corporations? According to Tax Notes, 72% of the value of all domestically held stocks is owned by pension plans, 401(k)s, individual retirement accounts and charitable organizations, or held by life insurance companies to fund annuities and death benefits.
Corporate tax rates, which were the driving force behind the permanent part of the 2017 tax cuts, receive less attention than individual income-tax rates only because Americans don’t understand that corporations don’t pay taxes. A corporate entity is a “pass through” legal structure—a piece of paper in a Delaware filing cabinet. When the corporate tax rate increases, corporations try to pass the cost on to consumers. To the degree that the entire cost of the tax increase can’t be passed on to consumers, those costs are borne by employees and investors. Most economic studies conclude that 50% to 70% of a corporate tax increase not passed on in higher prices is borne by workers, while 30% to 50% is borne by investors.
If you consume, you pay the corporate tax. If you consume and work for a corporation, you pay the corporate tax twice. If you consume, work and invest your retirement funds in corporate equities, the corporate tax rate hits you three times. Democrats call up the image of the greedy robber baron as a personification of big corporations, but when you pull back the curtain, it isn’t the wizard or the robber baron you see but yourself as a consumer, worker and pensioner.
Many Americans don’t pay individual income taxes, but all Americans pay corporate taxes. In fact, a recent Treasury study confirms that 92.6 million families, 49.5% of all American families, pay more in corporate taxes than they do in individual income taxes. Unfortunately Americans consistently underappreciate the burden the corporate income tax imposes, especially on middle- and low-income Americans. President Biden’s proposed corporate tax increases would raise taxes on more low- and moderate-income American families than if he raised individual income-tax rates.
Congress should reject Mr. Biden’s efforts to raise corporate tax rates, especially his effort to circumvent Congress and the Constitution with the global minimum corporate tax. If Congress refuses to adopt the global minimum corporate tax, Mr. Biden would allow foreign countries to tax U.S. subsidiaries to collect the equivalent of the global minimum tax on their U.S. earnings. Congress should pass a joint resolution rejecting the global minimum corporate tax. Further, it should adopt legislation that mandates retaliation against any country trying to tax American subsidiaries to collect the corporate minimum tax on U.S. earnings.
Mr. Biden and congressional Democrats claim corporations that get tax subsidies don’t pay their fair share, but the entire Biden program is festooned with special-interest corporate subsidies. We should eliminate those subsidies and use the savings to reduce corporate tax rates.
We must never forget that the corporate tax is a tax on everything we buy, a tax on our wages and a tax on our retirement nest eggs. By taxing corporations, the Democrats are taxing the American people.
Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. Solon is an adviser to US Policy Metrics. John Early contributed to this article.