Impact of Harris’s Corporate Tax Increase on Workers and the Economy

Of the several tax increases proposed by Vice President Kamala Harris, raising the corporate income tax rate from 21 percent to 28 percent is the most significant. The Harris campaign describes this tax hike as a fiscally responsible way to put money back in the pockets of working people. However, much of this tax increase would fall on workers in the form of lower wages. For instance, analysis by the Alliance for Competitive Taxation (ACT) finds the tax increase could reduce average wages by as much as $597 per US worker annually. In some states, wage reductions could exceed $700 per worker.

Economic Impact on Workers and Wages

Economists have long known that a portion of the corporate tax burden is borne by workers, as it prompts corporations to cut investments, leading to lower productivity, wages, and job opportunities. While estimates vary, most studies find significant downsides for workers, with labor typically bearing around half or more of the corporate tax burden. The rest falls on shareholders, including pension account owners, many of whom are low-income households. Consumers are also affected through higher prices, according to some research.

In a comprehensive study, economists Li Liu and Rosanne Altshuler estimated that around 60 percent of the corporate tax burden is borne by workers through lower wages. On the lower end, the Joint Committee on Taxation and the Congressional Budget Office estimate that 25 percent is borne by labor.

Wage Loss Calculations

ACT calculated the impact on workers’ wages of increasing the corporate tax rate to 28 percent. By taking the Treasury Department’s estimated revenue from raising the corporate tax rate ($1.3 trillion over a decade, or $135 billion annually) and multiplying it by the share borne by workers (25 percent to 60 percent), the total loss in wages ranges from $34 billion to $81 billion per year. Dividing this by the number of workers in the US (136 million in 2022) shows the average wage loss per worker would range from $249 to $597 annually.

The calculation can be further refined for each state. At the high end of the range, using the 60 percent incidence assumption, workers in states like California, Massachusetts, New York, Washington, and the District of Columbia could see average wage losses exceeding $700 annually. At the low end, using the 25 percent incidence assumption, workers in several low-income states, such as Mississippi, West Virginia, New Mexico, Montana, and South Carolina, would face wage reductions of nearly $200 annually.

Long-term Economic Consequences

Assuming no change in employment, both wages and employment would be negatively affected by a corporate tax hike. Our modeling of Harris’s proposal indicates it would reduce the number of full-time equivalent jobs by 125,000, reduce wages by 0.5 percent, and shrink GDP by 0.6 percent over the long run. Harris’s broader tax plan would eliminate 786,000 jobs, reduce wages by 1.2 percent, and decrease GDP by 2 percent, with the corporate tax rate hike being the most damaging of the proposed measures.

Conclusion

Harris’s proposal to increase the corporate tax rate by 33 percent would be a costly mistake for workers, leading to lower wages and fewer jobs. When considering options to fund various initiatives, the Harris campaign should explore alternative measures that are less harmful to workers.

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