Following President Biden’s proposal to raise the U.S. corporate tax rate from 21% to 28%, those who oppose the move said we can ill afford such a hike at a moment when employment is still in recovery from the COVID-19 pandemic. The National Association of Manufacturers released a study April 8 that predicts the higher rate would depress job growth in the U.S. by 1 million jobs over two years.
NAM President Jay Timmons, in a statement revealing the study, said that American businesses are at a pivot point.
“Manufacturers can, and should, lead the economic recovery in the wake of the pandemic,” said Timmons, “But this study tells us quantitatively what manufacturers from coast to coast will tell you qualitatively: increasing the tax burden on companies in American means fewer American jobs.”
The study, conducted by Rice University economists John Diamond and George Zodrow, used an economic model also used by the Treasury Department and Joint Committee on Taxation. It predicted what the economy might look like in two years if the corporate tax rate is increased, the corporate alternative minimum tax is reinstated, certain provisions of President Trump’s 2017 tax reforms are repealed immediately instead of expiring in 2025, and expensing of most investments are eliminated immediately instead of being phased out over 2023-2027 and replaced with a modified accelerated cost recovery system.
With those premises, Diamond and Zodrow found that total employment in hours worked would dip 0.7%, the equivalent of 1 million full-time jobs, before moderating in 2023, with an annual reduction in employment equal to about 600,000 jobs a year over a 10 year period.
Investments in equipment and structures, the study predicted, would be $80 billion less by 2023, and the 2023 GDP would be $117 billion lower than it would be under existing tax codes.
The study also predicted those figures would continue to fall, with investments falling by $83 billion in five years and $66 billion in ten, while the GDP would be down $190 billion in five years and $119 billion in a decade.
President Biden has touted the tax hike as a way to pay for his American Jobs Plan infrastructure bill, and the NAM supports the administration’s efforts. In the statement, NAM said “Manufacturers strongly support President Biden’s focus on bold infrastructure investment,” but said it could be funded “through a combination of revenue sources.” NAM’s “Building to Win” plan, first released in 2016, suggests funding infrastructure improvements through a variety of sources, including a gas tax, a vehicle miles traveled fee, registration fees for vehicles, a harbor maintenance tax, and a variety of bonds supporting public-private partnerships.
