Higher corporate taxes solve progressivity and revenue-generation

Reforming the 2017 Law’s Costly and Regressive Corporate Provisions

The 2017 law’s permanent corporate provisions are heavily tilted in favor of large corporations and their shareholders, who are disproportionately wealthy. Cutting corporate taxes costs significant revenue, and evidence is sorely lacking that the benefits have trickled down. Executives, disproportionately wealthy corporate shareholders, and highly paid employees have reaped virtually all the economic gains from the corporate rate cuts, research suggests.[37]

Reforming the corporate tax — such as by partially reversing the law’s deep rate cut to 28 percent, or halfway between the pre-2017 law 35 percent and the current 21 percent rate — would make the tax code more progressive while generating substantial revenue to fund national priorities.

The 2017 law’s international tax rules also require reforms to more effectively deter costly profit shifting and to better align with the global minimum tax agreement.[38] The 2017 law exempted certain foreign income of U.S. multinationals from U.S. tax and added several provisions, including the global intangible low tax income (GILTI) minimum tax, to try to limit incentives for foreign profit shifting. These provisions have serious design flaws, however, and leave significant room for multinationals to avoid taxes by shifting their profits to low-tax countries.[39]

In 2019, two years after the 2017 tax law was enacted, economists Ludvig Wier and Gabriel Zucman found “no discernible decline in global profit shifting or in profit shifting by U.S. multinationals.”[40] (See Figure 4.) This profit shifting costs significant revenue: globally, multinational corporations shift to tax havens about 36 cents of every dollar they make in profits, research suggests.[41]

Global Profit Shifting Remains High

Strengthening international tax rules by aligning them with the recent multilateral minimum tax agreement would increase the taxes multinationals pay to the United States. It would do so by ensuring that U.S. multinationals’ foreign profits are taxed at a rate closer to that which applies to domestic profits, and that more foreign profits are subject to the tax, which would greatly reduce the tax savings from reporting income offshore. It would also penalize foreign multinationals that operate in the U.S. if they earn profits in a country that does not impose adequate taxes. On the other hand, failing to update our rules would mean that another country could levy extra taxes on a U.S. multinational that operates within its borders — tax revenue that should be flowing to the U.S.[42]

There is little evidence that previous corporate tax cuts delivered the economic growth that proponents promised, particularly for lower- and middle-income workers. And there is no reason to believe that partially unwinding those cuts — by reducing the large cut in the corporate tax rate and restructuring international tax provisions to adhere to the global minimum tax agreement — would significantly harm the economy. Moreover, using the revenue from corporate tax increases to finance high-return public investments can boost growth. For example, compelling research finds that infants in families with lower incomes who receive more support from child-related tax benefits go on to have higher test scores, high school graduation rates, and earnings into young adulthood, all of which support a strong economy.[43]