Tax reform will boost wages
There is one clear action Congress could take to actually increase wages and create jobs — and benefit workers: corporate tax reform.
Real people ultimately pay for our high corporate tax rate. This includes consumers and shareholders, but just as importantly, it includes workers who receive lower wages as result of high corporate taxes. According to an analysis by our economists at the National Retail Federation, the average annual wages of C corporation employees are as much as $4,690 lower because of the high corporate tax rate.
That’s a stunning number, more than the average American worker’s monthly wage. And it’s backed up by a wealth of other evidence, as government and academic economists agree that labor bears between 25 percent and 75 percent of the corporate tax burden. If you apply those numbers to 2016’s corporate taxes, it means that American workers collectively lost between $75 billion and $225 billion in wages.
Even the low end of that estimate is far too much income to allow to be lost. That’s why tax reform is critical to creating new jobs and delivering substantial benefits to workers.
Given labor’s share of the corporate tax burden, reducing the tax rate to 20 percent would raise wages by between $32 billion and $97 billion — enough to support between 500,000 and 1.5 million new private-sector jobs.
This is a key concern for the retail industry, which holds a unique position regarding both workers and the corporate tax rate.
Retail is the nation’s largest private-sector employer, directly employing 13 million Americans and supporting 42 million jobs overall. The industry is also one of the nation’s highest tax-paying industries, with an average effective tax rate of 36.4 percent when both federal and state taxes are included. Retail businesses see firsthand how high corporate tax rates impact wages and jobs.
Yet many still argue that corporate tax reform would not benefit workers.
A report by the Institute for Policy Studies looked at 92 companies out of a total of about 1.6 million C corporations in the United States that paid an effective tax rate lower than 20 percent, and found that more than half had cut jobs between 2008 and 2015. Based on this small, hand-picked sample and flawed methodology, the report dubiously asserts that corporate tax cuts would yield the same disappointing results.
There are several problems with the institute’s analysis. First, it only examines a few dozen businesses that are “low effective rate taxpayers,” ignoring those in industries like retail that pay close to the statutory tax rate. Second, the report does not directly connect tax burden to jobs, only looking at overall employment change during the period studied. The report also does not factor in changes in tax rates, actual domestic tax rates, the economy or any factors that affect hiring.
There are certainly valid concerns about how some firms might respond to tax reform, but the overall picture is clear. An employee of an American corporation currently forfeits thousands of dollars each year because of the high corporate rate. Tax reform would mean real change that would last for decades.
Matthew R. Shay is president and CEO of the National Retail Federation.