A lot has changed since the 2017 pro-growth tax reforms were signed into law. These transformative changes made the tax code more competitive, and fueled the vital investment and productive activity that boosted U.S. economic growth and opportunity for businesses and individuals across America.
The 2017 Tax Cuts and Jobs Act (TCJA) provided relief and incentives regardless of business structure, including a reduction in the corporate income tax rate from 35 percent to 21 percent. The rate went from one of the highest in the developed world to a more competitive level. In response to the lower rates, U.S. companies significantly increased U.S. investment, worker pay and benefits, their plans for new investments and expansion, and new jobs.
Many members of Congress who championed the 2017 tax reforms are no longer in office. Therefore, newer members are still getting up-to-speed on the importance of the TCJA’s relief and incentives, and how it has fueled business and economic resiliency, especially during the challenging COVID and inflationary periods. Unfortunately, rather than objectively reviewing the facts and benefits of the TCJA, some members’ views are partisan. Scoring political points via populist rhetoric seems more important in positioning over policy (and winning elections) rather than objective analysis and reality. At the White House and in Congress, various politicians have vehemently turned against businesses, blaming the private sector for mistakes and bad policies that have increased costs for Americans and caused uncertainty about their financial security. Many of these policies were the doing of Congress and the Biden administration.
Because Congress designed the TCJA to fit budgetary rules and procedures, various provisions will expire at the end of 2025 and will need to be renegotiated. As Congress considers extending and restoring provisions within the TCJA, a significant concern is the potential increase in taxes on businesses, specifically the corporate income tax rate, which was a permanent feature of the 2017 package.
This idea, however, is counterproductive and would undermine the very tax-code competitiveness that was engineered for Main Street within the 2017 package. That is why lawmakers must understand what type of businesses are impacted by the corporate income tax rate. Changes that raise taxes will harm business constituents of all sizes and across industries – their employees and local communities – especially the smaller businesses that have benefitted from the lower rates.
While the word “corporate” may conjure images of massive multinational conglomerates, the reality is starkly different. A significant number of small businesses are structured as C-corporations. According to the latest Census Bureau data (2021), there were 1,328,981 C-corporations in the United States. Notably, 97.3% of these firms had fewer than 100 employees, and a staggering 90.1% had fewer than 20 employees.
Why do small and mid-size businesses opt for the C-corp structure? The reasons are multifaceted. The structure enables these businesses to compete more effectively in the marketplace with advantages such as limited liability, perpetual existence, to raise capital more efficiently and quickly, and to exit more cleanly through merger or acquisition. It is the preferred structure of venture funds, and critical for startups that begin to create and accrue intellectual property. Many of these startups and small businesses are high-growth firms that keep our economy competitive, innovative and dynamic.
Let’s not forget that millions of Main Street businesses are integral to critical supply chains. They provide goods and services to larger corporate entities, which act as outsized consumers within the economy. The benefits of a lower corporate tax rate extend beyond the individual entities, as their buying power and jobs keep local economies strong and offer opportunities for small businesses.
Increasing the corporate income tax rate would be a foolish backward step. It would dampen U.S. competitiveness and place greater burdens on the U.S. business ecosystem, which has already navigated several years of high inflation and digging out of the pandemic era and supply-chain issues that plagued the country for some time.
Over the course of 30 years, our organization has been involved in countless tax conversations and “fights.” The next round focused on the 2017 tax package is causing great worry, especially among entrepreneurs and small business owners. Washington must understand that lowering the tax burden on businesses in 2017 has been vital to our economy and its resiliency. It worked.
The U.S. cannot go back to higher non-competitive tax rates if we want our country to be the best place to start and grow a business. Raising the corporate rate, as some propose, would not only undermine U.S. competitiveness but harm the many small businesses that keep our economy dynamic and innovative.
