Raise corp taxes when the current rate expires next year?

You know Laffer is still very much alive and kicking! Raising taxes would actually reduce gross tax revenue as business would contract and would make the US less competitive on a global stage (as our current rate places us in the middle of the pack.

How to Build on Trump’s Tax Success

The expiration of Trump’s tax cuts next year gives Congress the chance to write an even more pro-growth code.

By Kevin Brady and Douglas Holtz-Eakin

Oct. 31, 2024 5:07 pm ET

The U.S. economy has suffered a poor growth record in the 21st century. From 1960 to 2000, per capita gross domestic product rose 2.3% annually. Since then, it has downshifted to 1.4%. This rough estimate of the standard of living once doubled every 30 years. In the 21st century, it is predicted to take 51 years.

Placing a renewed focus on saving, investment, innovation and business creation can reverse this decline. The 2017 Tax Cuts and Jobs Act did just this, but many of its reforms expire next year. Congress thus has the opportunity not just to extend but to build on these reforms, delivering an even stronger pro-growth tax code. Doing so requires comprehensive business-taxation reform.

The first step is to avoid backsliding. Kamala Harris advocates returning to an uncompetitive top rate of 28% on U.S. corporations, up from the TCJA’s 21% rate. As we’ve explained in these pages, the corporate reforms enacted in 2017 have been the wind at the back of American workers. On average the TCJA stimulated U.S. investment by 20%. Every $1 cut in corporate taxes increases economic production by an estimated 44 cents. Workers saw a 9% increase in inflation-adjusted earnings between Jan. 1, 2018, and Dec. 31, 2020—the fastest growth since the government began publishing data in 1979.

But achieving stronger pro-growth policies in the next round of reform requires learning a larger lesson: Corporate taxation and business taxation aren’t the same thing—and the latter is tightly related to individual income taxation.

Most business income comes from pass-through entities, in which each owner’s income share is “passed through” to be reported and taxed on his individual income-tax return. These businesses—including sole proprietorships, partnerships, Subchapter S corporations and limited-liability corporations—employ more than half of the country’s private-sector workers. They aren’t subject to corporate taxes.

The TCJA’s writers lowered individual income rates to spur growth for Main Street businesses and pass-through companies. They created Section 199A—or what they called the 20 Percent Small Business Tax Deduction—which allows pass-through owners to deduct 20% of their business’s income. This deduction reduced the effective tax rate to 80% of the statutory tax rate, supported 2.6 million jobs, raised employee compensation by $161 billion and added $325 billion to output. But it’s scheduled to sunset at the end of 2025.

Here too, Ms. Harris proposes to go in the wrong direction. She is promising to raise individual tax rates on incomes above $400,000, thus excluding many pass-through businesses from the deduction based on their success. She proposes as well to subject more pass-throughs to a higher net investment income tax rate of 5%. These proposals would raise rates as high as 45%, damaging Main Street and big business.

Rather than backsliding, Congress can make real progress. Besides extending the deductions scheduled to expire, it can enact new reforms. These include allowing the immediate expensing of investment in new technology, write-offs for research-and-development expenses, and interest deductibility. And it could extend the bipartisan Opportunity Zones program, which spurs investment in low-income areas. An extension of the estate tax’s current design—which saves families from having to sell their property or meet a 40% tax when a loved one dies—would also spur growth.

Raising the standard of living is a nonpartisan goal—one the pro-growth provisions of the TCJA clearly advanced. Over the next year, Congress can do more than merely ensure these provisions don’t expire: It should seize this opportunity to build on the gains in global competitiveness and growth fostered by the 2017 reforms.

Mr. Brady served as chairman of the House Ways and Means Committee, 2015-19. Mr. Holtz-Eakin, president of the American Action Forum, was director of the Congressional Budget Office, 2003-05.