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Tax reform
Public Policy

Corporate taxes cost American workers more than $4,000 in lower wages

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As the debate on tax reform moves forward, Americans are rightfully asking what is in it for them. What’s often missed in debates over corporate tax reform is just how effective it can be in putting money back into the pockets of American consumers through higher wages. NRF’s most recent analysis shows that high corporate tax rates push down the wages of the average corporate worker by as much as $4,690 a year.

At 35 percent, the United States has the highest federal corporate tax rate in the industrialized world. The high corporate tax rate has driven investment out of the United States, stifled job creation and reduced compensation for American workers.

This issue is critical for the retail industry. As the nation’s largest private-sector employer, and paying one of the highest effective tax rates of any industry, high corporate taxes have a very negative impact on both the retail labor force and the labor force in general. Since retailers only do well when American consumers do well, it is important to understand just how harmful the impacts of a high corporate tax burden are on the American workforce.

While critics claim that corporate tax cuts only benefit those who are already rich, the data just doesn’t support that view. Both government and academic economists agree that high corporate taxes limit compensation and employment levels. Research shows that between 25 and 75 percent of the U.S. corporate income tax is borne by workers through lower wages and reduced job opportunities.

Research shows that between 25 and 75 percent of the U.S. corporate income tax is borne by workers through lower wages and reduced job opportunities.

While the congressional Joint Committee on Taxation estimates that labor bears closer to 25 percent of the burden of corporate taxes, empirical academic research generally reflects an even higher figure. For example, a study by professors at Oxford and the University of Warwick found that 49 percent of the corporate tax burden falls on labor. Additionally, a study by professors at Harvard and the University of Michigan found that the corporate tax burden on labor ranges from 45 to 75 percent.

Based on this economic research, we can assume that workers bore the burden – in the form of lower wages and reduced job opportunities – for between $75 billion and $225 billion of the $300 billion-plus that U.S. C corporations paid in federal corporate income taxes in 2016.

Assuming that Congress were to reduce the corporate tax rate to 20 percent – as proposed by House Speaker Paul Ryan, R-Wis., and Ways and Means Committee Chairman Kevin Brady, R-Texas – wages could increase in the range of $32 billion to $97 billion. With the average worker in private industry earning $64,000 annually in 2016, the 15-percentage point rate reduction would generate enough new wages to support an additional 500,000 to 1.5 million jobs.

In order to show how corporate taxes affect an individual worker, we divided corporate tax receipts by the number of corporate workers. Since data is not yet available for the number of corporate workers in 2016, we looked at 2015 and found that corporate receipts were $343 billion and there were 54.8 million domestic jobs at C corporations.

In 2015, workers bore between $86 billion and $257 billion of the corporate tax burden. When we spread the higher number across the number of workers, we see that the average employee bears as much as $4,690 of this corporate tax burden.

So as the debate proceeds in Washington and around the country, we hope that individual Americans will realize how corporate tax reform would benefit them and remember that high corporate taxes depress wages and limit job creation. Thousands of dollars in lost wages is what’s on the table in millions of households across the country.

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Tax Reform
Tax reform

With few of the credits and deductions that ease other industries’ tax burdens, retailers pay the highest taxes of any industry.