Some things are important to know but don’t make sexy reading. You won’t find reports on the global competition to cut business taxes on the front pages newspapers, in social media or on television. That does not mean competition to cut business taxes has not been happening. In fact it is happening right in front of our faces… even if it has gone unreported.
Lower tax burden increases freedom
Reducing the tax burden on business increases economic freedom. The result of reducing business tax load is persuasively demonstrating its importance. Tax burden distorts and influences decisions made by individuals and entrepreneurs. These things are important because they tell us cutting business taxes puts dollars in the average American’s pockets. That does not fit in the leftist narrative.
Neoclassical economics asserts; economic output increases when individuals and firms are economically free to utilize labor and capital in the most efficient ways. Placing more tax burden on business means higher labor cost and higher capital cost. Higher taxes limit economic freedom in that way. They create barriers to the efficient use of these factors of production. Higher business taxes are a drag on an economy.
Higher business tax burden is sneaky
The higher the taxes burden, the more taxes change the calculations employees and enterprises do in making their decisions. Higher taxes necessarily reduce wage growth, job creation, and innovation. The trick here, and it is used mostly by the left, is that tax burden is hidden from those who actually pay it, that’s you and me, when it is levied on business rather than individuals. We just see higher cost at the checkout stand. We do not associate that to government. It is a pretty sneaky to hide tax on us.
In keeping with this understanding of modern economics, the countries of the Organization for Economic Cooperation and Development (OECD) have been cutting corporate tax rates. They do this to remain competitive in the global market and have been doing so since the 1980s. Before the ’80s, those countries had corporate tax rates ranging from the mid 30% range to about 60% in Germany and Sweden. Such levels are unheard of today. In fact, every OECD nation now has a corporate tax rate under 35%.
The unweighted average corporate tax rate of the OECD countries is 23.8%. That is lower than the 25.7% average combined federal and state corporate tax rate after passage of the Tax Cuts and Jobs Act in the United States. Most people do not understand this. Even after the tax cut American business is at an 8% tax disadvantage to the average OECD country.
France now has the highest business tax rate among the OECD at 34.4% while Hungary the lowest business tax rate at 9%. Think about that. The lowest tax rate is in a former Eastern Bloc country and the highest is in a leading western country. The American left would have you believe that the administration’s tax cuts were designed to make the fat cats fatter. That just isn’t so. The tax cut did get us closer to competitive in global trade.
Hypocritical American Leftists
These are the same European economies whose policies the left claims to covet. They say they yearn to import them to America. But not one Democrat voted for the tax cut… not one. Look, I’m just saying, if you are going to talk the talk then shouldn’t you walk the walk? How hypocritical are these leftist American politicians?
The results of the tax cut have been dramatic. According to U.S. census information, 54.8 million people in the U.S. are employed by corporations. A growing body of research shows that it’s those workers who ultimately bear the majority of the burden of corporate taxes.
With that burden reduced they are prospering. Wage growth is at a 10-year high. The left is wrong on tax policy. The left is wrong on economics. They are swimming against the current of history when they insist on increasing tax burden on free enterprise.
Countries worldwide have understood the benefits to their people of reductions in taxes. The competition among them to lower rates has helped usher in the greatest era of global prosperity in human history. America was late to join that party. Now that it has, the American people are reaping the benefits.