Raise the Corporate Income Tax Rate to 28 Percent

The Tax Cuts and Jobs Act of 2017 lowered the corporate tax rate from 35 percent to 21 percent. Prior to that change, the US had one of the highest statutory corporate tax rates in the world. Now, the US rate is slightly above average among OECD countries.

This option raises the corporate tax rate to 28 percent. A higher corporate tax rate would increase the cost of capital, reducing incentives to invest in the US. The capital stock would shrink, and demand for labor would fall, reducing wages and hours worked. A higher corporate tax rate would also increase profit-shifting incentives.

On a conventional basis, this option would decrease the primary deficit by $1,410.0 billion over the budget window. Long-run GDP would fall by 0.5 percent, and long-run GNP by 0.3 percent. On a dynamic basis, the primary deficit would decrease by $1,006.3 billion from 2027 through 2036, $403.7 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 169.3 percent by 2056.

On average, in 2036, taxpayers would see decreases in their after-tax incomes of 0.7 percent. The top quintile of taxpayers would experience a 0.8 percent decrease, while the bottom quintile would experience a 0.6 percent decrease. On a long-run dynamic basis, taxpayers would see a 1.1 percent decrease on average.