How Tax Reform Can Help the U.S. Economy and American Workers

In recent days, economists from the left and the right have been drawn out to discuss potential benefits to workers and the economy stemming from tax reform. That’s a debate we’re happy to have. Business Roundtable represents America’s largest employers who are well-positioned to weigh in. In fact our member companies currently account for more than 16 million American jobs across a range of industries and all fifty states.

Yesterday, Larry Summers took issue with the Roundtable’s data that tax reform has significant positive benefit for job creation. To be specific, we say that “a competitive 20 percent corporate tax rate could increase wages sufficient to support two million new jobs.” Translation: We believe that reducing the corporate rate to 20 percent could increase wages sufficient to support up to an equivalent of two million jobs which could take the form of higher wages for existing workers, more hours for part-time workers, and new jobs for unemployed and discouraged jobseekers.

Here’s a quick calculation:

• The corporate income tax is projected to collect an average of $400 billion annually over the next 10 years. A reduction in the corporate rate to 20 percent — without taking account of base broadening provisions or other pro-growth tax reform features — would reduce corporate income tax payments by 15/35ths, or about $170 billion per year. A number of academic studies estimate that workers bear anywhere from 25 percent to 75 percent or more of the burden of the corporate income tax in the form of reduced wages. This implies employee compensation would be higher by between $40 billion and $130 billion each year at a 20 percent corporate tax rate. The increase in compensation could take the form of higher wages for existing workers, more hours and wages for part-time workers, and new jobs for the currently unemployed and discouraged workers.
• Assuming average compensation of $64,000 per job (representative wages and benefits), this implies a wage increase sufficient to support up to 2 million jobs at the upper end of the range and 670,000 jobs at the lower end of the range. In all likelihood, it would be a combination of new jobs, additional hours and higher wages, the benefits of which would phase in over time.

There are always differing views on basic economic assumptions and certainly this will only increase as legislation is put forward. We stand strong as America’s leading job creators and economic engines to draw on real world expertise and data to inform our point of view. You can’t argue that meaningful reform that reduces the burden of the corporate income tax and simplifies the tax system isn’t good for the economy and good for all Americans.