The impact of a corporate tax rate increase on retail workers

The retail industry, which has one of the highest effective tax rates of any sector of the economy, received a substantial tax cut when the U.S. corporate tax rate was reduced from 35 percent — the highest in the industrialized world — to 21 percent as part of the 2017 Tax Cuts and Jobs Act.

As the nation’s largest private-sector employer, a large portion of that savings was invested in workers through higher wages, bonuses, shares of stock, expanded paid leave policies, tuition reimbursement, skills training and other employee benefits. Here are some examples of how retailers invested in their workers following the enactment of the TCJA.

The tax cut also provided retailers, which generally operate on slim profit margins, with additional resources to invest in a changing economy, and retailers were able to invest in expanding their ecommerce, shipping and delivery capabilities. Those investments proved critical to the survival of these businesses during the pandemic when most stores were temporarily closed and consumers were on lockdown.

Now, however, President Biden has proposed raising the corporate tax rate to 28 percent to help pay for infrastructure improvements. While retailers support better infrastructure, that’s an increase of one-third that would make the rate once again one of the highest among major nations. One of the policy justifications cited by the administration is that some companies have high incomes but pay little or no corporate income tax.

But this concern is a function of various tax breaks Congress has written into the Internal Revenue Code that allow some businesses to “zero out” their taxes by reducing the base of taxable income against which the tax rate is multiplied.

Raising the tax rate will not address this concern because 28 percent of zero is still zero. Retailers, which do not benefit from most of the tax preferences that help other industries and consequently pay taxes at the highest possible level, would bear the full brunt of the proposed increase.

If retailers are hit with a one-third increase in the tax rate they will need to postpone or cancel post-pandemic expansion plans, close more stores, eliminate more jobs and slow down investments in the digital economy that are necessary to meet consumers’ evolving shopping behaviors.

There is no debate in the economic community that a portion of the corporate tax is borne by labor. The only debate is how much of the tax impacts labor. A recent study performed by EY for NRF showed that one-third of the proposed increase would impact labor, leading to 730,000 fewer jobs and lower wages. Speaking for our nation’s largest employers, we believe there is a better way to finance needed investment in infrastructure.