Corporations play an essential role in society, contributing to economic buoyancy and job creation. However, there’s an increasing debate around whether they are paying their fair share of taxes, especially in light of the substantial benefits they derive from public infrastructure, stability, and scientific advancements that governments provide.
The discussion on corporate tax has intensified following the implementation of the 2017 Tax Cuts and Jobs Act, which reduced the corporate tax rate from 35% to 21%. Although intended to stimulate investment, critics argue that the law primarily resulted in shareholder gains and exacerbated inequality. Several of the Act’s provisions will expire next year, which has spurred policymakers into a fresh debate over the future of corporate taxation.
Proponents of higher corporate taxes, including a range of Democratic groups, argue that the benefits of higher corporate taxes extend beyond increasing government revenue. By imposing taxes on pure profits—earnings that exceed the costs of investment—corporate taxes do not significantly affect business investment or employment. Furthermore, taxing market power profits helps reduce economic inequality and discourages monopolistic behaviors that stifle competition and innovation. Academic research has shown that increased market power and reduced competition lead to profits that would not be justifiable in a well-functioning competitive market. Hence, the corporate tax contributes to a more dynamic and equitable economy.
Escalating the corporate tax rate to 28% could generate an estimated $1.35 trillion over the next decade. This amount significantly surpasses projected federal expenditure on child nutrition programs and is sufficient to cover the Bipartisan Infrastructure Law’s allocation for transportation and infrastructure spending.
The argument against lowering the corporate tax rate is bolstered by the notion that it would merely trigger a global “race to the bottom,” where countries reduce rates competitively, benefiting corporations at the expense of equitable economic growth and sufficient fiscal resources. Advocates for higher corporate taxes propose stronger international collaboration, suggesting a global corporate minimum tax of 25%, a figure above the OECD’s effectively 12% to 13% proposal.
A shift towards fair corporate taxation isn’t just an economic imperative—it’s an ethical one. Corporations benefit immensely from the infrastructure, economic stability, scientific foundations, and rule of law provided by governments. As such, they must contribute equitably to ensure the sustenance and growth of these fundamental public goods.
For a deeper exploration of this debate, the original article by Columbia University’s Joseph Stiglitz, and American University’s Ignacio González and Juan Montecino can be found here.