There’s been a lot of economic news swirling around lately, and over the next couple of weeks, we’re going to break down some of the more pressing developments. Let’s start with a big one: the corporate tax rate.
While it might not grab headlines like inflation or unemployment, the corporate tax rate plays a major role in the strength of our job market and, by extension, the health of our economy. And if the past few years have taught us anything, especially during and after the pandemic, it’s that maintaining a strong, stable job market is absolutely vital.
One way to help sustain that strength? Make sure companies have the financial breathing room to grow. Expansion requires investment — in equipment, in facilities, and most importantly, in people. But when corporate tax rates are sky-high, companies often can’t afford to expand, and that stifles job creation. Before 2017, the U.S. corporate tax rate stood at a hefty 35%, one of the highest in the world. That kind of burden made it tough for businesses to justify reinvesting in domestic growth.
The Result?
Many corporations looked elsewhere. Countries like Ireland — with a much lower corporate tax rate — became popular destinations for company headquarters. This phenomenon, often called “corporate inversion,” allowed businesses to pay less in taxes but meant fewer jobs and less tax revenue here at home. It was a lose-lose for the American economy.
Enter the Tax Cuts and Jobs Act of 2017. Among other changes, it lowered the corporate tax rate from 35% to 21%. That shift made the U.S. more competitive globally and began reversing the trend of companies fleeing overseas. Corporations started bringing operations back stateside, which helped rejuvenate the labor market. Unemployment dropped to historically low levels in the years following the change.
And that strong job market? It’s one of the key reasons the U.S. has avoided a full-blown recession in recent years — even in the face of stubborn inflation and supply chain shocks. Compare that to the late 1970s, when high inflation was matched with high unemployment. Economists call that “stagflation,” and it was a brutal time for workers and businesses alike.
Reaganomics & Thriving Business
Now, critics often argue that lower corporate taxes primarily benefit big companies. And yes, larger firms do see significant savings. But here’s the question: if those savings are driving job growth, wage increases, and new investment, isn’t that a net positive? A thriving economy needs thriving businesses — and that includes the big ones. When they grow, the ripple effects are felt throughout communities, industries, and supply chains.
So while it may sound simple, sometimes the best economic solutions are rooted in common sense. Lower taxes free up money for investment. Investment leads to jobs. Jobs support families and keep our economy strong. It’s not just theory — it’s real-world economics that works.
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Image by Mohamed Hassan from Pixabay
