How Higher Corporate Taxes Would Affect Your Local Economy

A competitive corporate tax rate is crucial for fostering economic growth and attracting investment. When businesses face lower tax burdens, they have more capital to invest in operations, innovation, and expansion, leading to job creation and increased productivity.

Some of us are asking, are we still under Trump tax policy? As of now, key provisions of the Tax Cuts and Jobs Act, enacted during the Trump administration, remain in effect. However, some of these provisions are set to expire at the end of 2025 unless Congress takes action to extend them.

Higher tax rates have the opposite effect on business growth and innovation. As such, proposals to raise the corporate tax rate not only jeopardize America’s global economic competitiveness but also deal a blow to American workers and families in the form of lower wages and higher prices. 

As the data in the map below illustrate, even raising the corporate tax rate by a single percentage point would have negative implications for workers and communities across the nation. 

Restoring America’s Economic Competitiveness  

In December 2017, Congress passed the landmark Tax Cuts and Jobs Act (TCJA), the most comprehensive tax reform legislation enacted since 1986. The TCJA reduced and simplified the federal tax burden on American families and workers, and it substantially modernized America’s approach to taxing business income.   

Before the law’s enactment, the United States had earned the dubious distinction of being home to the highest statutory corporate tax rate in the industrialized world, which harmed our economy and pushed investment and jobs overseas. 

To help restore the global competitiveness of American companies and attract foreign investment to the United States, the TCJA permanently lowered the corporate tax rate by 14 percentage points, from 35% to 21%. In conjunction with the TCJA’s other pro-growth reforms, reducing the corporate income tax significantly boosted domestic investment, studies now confirm, while increasing economic growth and workers’ wages. 

Understanding the Economic Impacts of Higher Corporate Taxes  

Even with the TCJA’s historic reforms, however, U.S. corporations remain subject to an average combined federal-state statutory tax rate of 25.63%—higher than the current Organisation for Economic Co-operation and Development (OECD) average rate of 23.85%. 

It is, therefore, critical for policymakers to understand that any proposal to raise the current corporate tax rate would put U.S.-based companies at a further disadvantage relative to their foreign-based competitors and increase the relative cost of business investment in America. But the harm wouldn’t stop there. Studies have shown that raising the corporate income tax would not only reduce economic output and wage growth but also increase consumer prices. 

It is for these reasons that public- and private-sector economists alike have consistently characterized raising the corporate income tax as one of the most detrimental and inefficient ways to fund government priorities. 

GROWING AMERICA'S FUTURE: See all our work on why competitive, pro-growth tax policy is essential

Breaking Down the Local Impacts on Workers and Families 

Recently, some policymakers have expressed support for raising the corporate income tax to offset the cost of other priorities, with some proposing to raise the corporate statutory rate by one or two percentage points—from 21% to 22% or 23%. This has led many to question, are we still under Trump tax policy?​ Others have contemplated doing this indirectly, by disallowing the deduction for state and local corporate income tax payments (C-SALT proposal). If Congress were to preserve the current 21% statutory corporate tax rate but adopt the C-SALT proposal, the average U.S. corporation would face an effective corporate tax increase of 1.23%.¹  

The damage either change would do to America’s global competitiveness is clear: with an average combined federal–state corporate tax rate of approximately 27%, the United States would become the tenth highest-taxed country in the OECD—ceding our competitive advantage over the Netherlands, France, Canada, and South Korea. But what would this change mean for local businesses, workers, and their families? 

Raising the corporate tax rate by just one percentage point would increase federal tax revenue by an estimated $136 billion over the next decade. But where would that $136 billion come from? Businesses have only three options to pay for higher taxes: raise prices; reduce costs; or lower returns to investors. In reality, they do all three. Recent economic research shows that just over half the cost of higher corporate taxes is borne by consumers in the form of higher prices, with another 28% borne by workers in the form of lower wages and the remaining 20% borne by shareholders (which includes retirement accounts) in the form of lower returns. 

1 According to OECD data, the current U.S. federal statutory corporate income tax rate less deductions for state and local corporate income taxes is estimated to be 19.77% and the average combined state and local statutory corporate income tax rate is estimated to be 5.86%, which produces a combined federal–state statutory corporate income tax rate of 25.63%. OECD, Corporate Income Tax Statutory and Targeted Small Business Rates (updated Sept. 2024). If Congress were to adopt the C-SALT proposal, the average effective corporate income tax increase on U.S. companies (1.23%) would equal the product of the average state/local corporate income tax rate (5.86%) and the federal corporate income tax rate (21%). 

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About the authors

Watson M. McLeish

Watson McLeish is senior vice president for Tax Policy at the U.S. Chamber of Commerce, where he serves as the primary adviser on all tax policy-related matters.

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Curtis Dubay

Curtis Dubay is Chief Economist, Economic Policy Division at the U.S. Chamber of Commerce. He heads the Chamber’s research on the U.S. and global economies.

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