One of the largest policy issues being discussed in Washington D.C. currently is a serious change to our tax policy, and it is a discussion that is of critical importance to Colorado鈥檚 business community, consumers, and working families.
There were a lot of pieces included in the federal tax package that emerged from the House Ways and Means Committee recently, but one of the most concerning was a proposal to increase the corporate income tax rate. The current, economically sustainable rate of 21%, which was lowered from 35% in 2017, was instrumental in driving job growth and economic expansion in the United States before the onset of the COVID-19 pandemic and has been equally vital in helping small businesses recover over the past year.
In an economy that is increasingly global in nature, this relatively low current tax rate has benefitted virtually every sector of our economy, from agriculture to aeronautics, and those benefits were felt in communities everywhere 鈥� including places like Westminster.
Still, Congress and the White House proposed raising the tax rate back up to as much as 26.5%, in order to generate revenues for unprecedented spending bills. The framework released by President Joe Biden last week thankfully left out the corporate tax proposal; but it still included several economically damaging tax measures, such as a higher global minimum corporate tax, and there is no guarantee that an increase in the domestic corporate income tax rate — which has been a major policy priority for Congress and the White House all year — 聽will not still be in the works.
This would be an enormous economic mistake. A corporate income tax rate of 26.5% would impose on the American economy one of the highest tax rates in the world 鈥� and this is before even adding in the cumulative effects of state and local taxes. When you include Colorado鈥檚 4.55% corporate income tax and account for allowable federal deductions — many of which are going away due to recently passed state legislation — the combined rate for Colorado businesses is currently already 24.6% — increasing the federal corporate rate to 26.5% would only make that combined rate even harder for businesses to bear. Every aspect of our economy, from energy, to food, to manufacturing, to retail sales, will be impacted by such an increase. As our economy becomes ever more integrated and diversified, maintaining a competitive, pro-growth tax code is increasingly vital.
It is fashionable to characterize corporate income taxes as merely a tax on 鈥渂ig, rich corporations鈥�, but the reality is that most of the businesses on which this tax will be passed on to are small and locally owned. They are the businesses that we see and go into every day, ones that are owned by our neighbors or family members, or even ourselves. Many of these businesses are operating on extraordinarily tight margins already, still in the early stages of recovering from the COVID-19 pandemic, and struggling with rising costs, labor shortages, and supply chain disruptions. Most businesses simply cannot afford another financial burden.
This all brings us to the middle-class workers who will be impacted by this rate increase. It is another popular myth that higher corporate income taxes affect only business owners. The fact is that higher rates on businesses will force cost reductions, with wages and labor force decreasing concurrently, and for consumers, the prices increase as we shoulder the weight of this tax burden.
Businesses, especially small ones with little remaining room to maneuver financially, as a rule pass these taxes on to their customers in the form of higher prices. When the consumer stops or pares back his or her purchases due to the increased price, the business is often forced to cut costs elsewhere, such as in being forced to lay off employees. In the end, everyone suffers from the added burden.
Gov. Jared Polis recently pointed out that when you tax something you get less of it, so it makes little sense, for instance, to tax income. Should we, then, really be looking at adding on taxes to our small business owners and the commerce they provide? As these discussions proceed in Washington D.C., we ask Sens. Michael Bennet and John Hickenlooper to call on their small business backgrounds and protect Colorado鈥檚 small businesses and working families by opposing any renewed efforts in the coming days at increasing the corporate income tax rate.
Juliet Abdel is the president and CEO of the Westminster Chamber of Commerce.
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