Business News
The Benefits of Lowered Corporate Taxes
A Closer Look at TCPA of 2017
Written by: Paul Bloodsworth
October 24, 2024
[5 minute read]
Summary
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced sweeping changes to the U.S. tax code, and one of the most significant was the reduction of the corporate tax rate from 35% to 21%.
While corporate tax cuts often stir debate, they have had far-reaching benefits not just for businesses but for everyday Americans as well.
However, many misunderstand how lowering corporate taxes positively impacts citizens, leading to misconceptions about who truly benefits.
In this article, we’ll explore:
- how these tax cuts have fueled economic growth and improved prosperity for workers and families—and
- how failing to grasp these connections can obscure the broader benefits to society.
The Economic Benefits of Lower Corporate Taxes
Lowering corporate taxes is about more than just increasing profits for businesses. In fact, reduced corporate tax rates help drive the economy in several key ways:
1.) Increased Business Investment
When corporations are taxed less, they retain more of their profits, which can be reinvested into their operations. This reinvestment can take the form of purchasing new equipment, expanding facilities, or adopting new technologies. The result? Greater productivity, improved efficiency, and the creation of more jobs.
- For example, following the passage of the TCJA, business investment grew at a faster rate, with companies allocating more resources toward growth. Investments in automation, research, and development (R&D) rose, contributing to a more competitive U.S. business environment. More investment means businesses are better positioned to offer higher wages and create new opportunities for workers.
2.) Job Creation and Wage Growth
One of the most direct benefits of lower corporate taxes is their impact on the labor market. With more capital to invest, businesses are able to expand their workforces, leading to job creation. Lower corporate taxes also give companies the financial flexibility to increase wages.
- For instance, after the TCJA, many large corporations, such as Walmart and AT&T, announced wage increases, bonuses, and employee benefits packages. These actions, spurred by the additional resources freed up by tax savings, directly benefited millions of workers. By keeping more money within businesses, the tax cuts enabled a trickle-down effect that improved job stability and raised living standards for families across the country.
3.) Boosted Economic Growth
Lower corporate tax rates stimulate economic growth by fostering a more favorable environment for businesses to thrive. With a lower tax burden, U.S. companies become more competitive globally, and foreign investment in the United States increases. This helps grow the U.S. economy overall, translating into more robust job markets, rising wages, and better economic opportunities for all citizens.
- After the TCJA, the U.S. saw an acceleration in economic growth, with GDP expanding at an average rate of 2.9% in 2018, up from 2.4% in 2017. This growth was not limited to corporate profits but extended to small businesses, entrepreneurs, and employees.
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Misunderstanding Around Corporate Tax Cuts
Despite these clear benefits, there are common misconceptions about the impact of lowering corporate taxes. These misunderstandings often cloud public perception and fuel resistance to tax cuts:
1.) "Only Corporations Benefit"
One major misconception is that corporate tax cuts solely benefit large companies and wealthy shareholders. While it's true that corporations see immediate financial gains from reduced taxes, the long-term effects ripple throughout the entire economy, benefiting workers, small businesses, and consumers.
- For example, many believe that lowering corporate taxes simply enriches CEOs or stockholders, but this overlooks the fact that businesses reinvest their savings into expansion, innovation, and improving wages. By misunderstanding how tax cuts enable economic growth, critics fail to see the positive impact on workers and middle-class families.
2.) "Corporate Tax Cuts Don't Affect Me"
Another common fallacy is the belief that corporate tax policies do not directly impact everyday citizens. In reality, when businesses thrive, the benefits extend beyond boardrooms and shareholders. When companies have more capital to hire workers, increase wages, and invest in innovation, everyone benefits.
- The TCJA led to wage hikes and job creation across multiple industries. By assuming that corporate taxes are isolated from the broader economy, people miss out on understanding how interconnected business success and personal economic well-being truly are.
3.) "Lower Taxes Mean Less for Public Services"
Some argue that cutting corporate taxes reduces government revenue and ultimately harms public services. However, the theory that higher taxes on businesses automatically leads to better public funding doesn’t account for the growth in revenue that can result from a more robust economy. As businesses grow, the tax base expands, and the government often collects more tax revenue even at lower rates.
- This was evident after the TCJA when tax revenue initially dipped but later recovered as the economy expanded and businesses contributed more overall.
The Bigger Picture: Corporate Tax Cuts Benefit Society