Harris' Corporate Tax Hike Would Hurt Everyday Workers: A Lesson on Who Actually Pays Corporate Taxes

As Vice President Kamala Harris gets momentum on being the Democratic nominee for president, she has unveiled more of her policy ideas. Last week, Harris proposed her first policy idea to raise revenue: raising the corporate tax rate from 21 percent to 28 percent. She said that this is "a fiscally responsible way to put money back in the pockets of working people and ensure billionaires and big corporations pay their fair share." 

If business taxes were primarily paid by the business owners, this could be a way to raise money from high-income Americans. As recent analysis from the libertarian Cato Institute shows, it does not work that way. The business owners or the stockholders do not bear the majority of the tax incidence: it is the everyday workers. Cato Institute pointed out one research paper from the Right-leaning Tax Foundation (Entin, 2017) concluding that "Labor bears between 50 and 100 percent of the burden of corporate income tax, with 70 percent or higher the most likely outcome." 

The Cato Institute brings up another bit of bad news. The loss of societal economic welfare, referred to as deadweight loss, could very well be higher than the government revenue earned. Historically, a tax increase in the United States of $1 has decreased GDP by $3 (Romer and Romer, 2010). Because high corporate taxes depress wages of laborers (Hasset and Matthur, 2011), that could be high as 400 percent of the revenue collected, as one study from the Federal Reserve Bank of Kansas City found (Felix, 2007). 

Conversely, economic results from the Tax Cuts and Jobs Act (TCJA), which included a corporate tax cut, showed a 0.9 percent increase of GDP in the long-run, as well as an average increase of labor income of $700 per employee (Chodorow-Reich et al., 2024). I actually wrote on the topic of corporate taxes cuts boosting economic growth in November 2023, which means the damage caused by corporate taxes is nothing new here. 

I have covered how awful the corporate tax is in 2014, in 2017, in 2021, and in January 2023. The Organization for Economic Cooperation and Development (OECD) is hardly for limited government, yet the OECD found that the corporate tax is the most harmful for economic growth. Corporate taxes depress wages of laborers, disincentivize savings, create a huge tax burden, and reduce productivity of labor. 

There are two silver linings I have for Harris' proposal. One is that the increase is only to 28 percent (see above). I keep this in mind given that it was 35 percent pre-TCJA. Even so, 28 percent would bring the United States to the highest corporate tax rate in the developed world. Two is that the Republicans are likely to gain a majority in the Senate come November, which means that this will likely be shot down before it sees the light of day. But if she does get her way, what the empirical research does make clear is that her corporate tax hike would depress wage growth for everyday workers, damper investment, and lower economic growth.