Last week, US President Joe Biden laid out plans to raise the US corporate tax rate from the current 21% to 28%. This would roll back the cuts that Donald Trump had enacted several years earlier. It is almost certain that the Republican Party, seemingly directionless, will oppose this change. And as a general rule, I would agree that this specific proposal is a bad idea. High taxes (relatively speaking) on corporate profits damage an economy. It’s not hard to understand why: Capital is far more mobile than labour, and if taxes are lower in one nation, money will water-like flow downhill there.
When I was growing up, the Republican Party was the party of Big Business. This is no longer the case. The reason why the Democrats out spent the Republicans two to one in the latest election was because of Silicon Valley, Wall Street, and the billionaire donor class. Meanwhile, the Republican Party has become the party of blue-collar America and small business owners. The working classes have never had a particular problem with taxes on corporate profits. It’s a very different matter with small business owners, however, and this is the dilemma facing the post-Trump Republican Party.
But there is a solution and it’s one that marries great politics with great economics. If I were leading the Republican Party, I would propose the following: “The corporate tax rate on companies whose revenues exceed $100 million should not be 21% or 28%. It should be 35%. And the corporate tax rate on companies whose revenues are less than $100 million should not be 21%. Rather, it should be 11%.” This would be an economic and political game-changer and combined with several other common-sense policies, could propel the Republicans to a huge electoral majority in the 2022 mid-terms.
Economic growth is desirable when it’s broad-based. But this is not something that we’ve seen in the past twenty years. Rather, wealth has become increasingly concentrated for understandable, structural reasons: Technology has allowed economies of scale that were previously impossible. Therefore, it makes sense for public policy to push back against that. Cutting taxes on ALL companies exacerbates income inequality while a two-tiered tax structure that tilts the field in favour of smaller companies would do the exact opposite. And because what every politician from every party cares about most is getting elected, it would be something that every reasonable and self-interested Republican should embrace.