Popular vernacular among some of the electorate is that businesses are not paying their “fair” share and should thus be taxed at higher rates. However, plenty of research indicates that corporate taxes trickle down to consumers in multiple ways.
Certainly, shareholders take a hit through smaller dividends and diminished returns on their investment.
Multiple studies have concluded that consumers take the brunt of corporate taxes. Businesses pass up to 50 percent (according to one study, it is closer to 65 percent) of the burden through higher prices on goods and services.
Higher corporate tax rates can affect take-home pay by lowering worker wages, giving consumers less purchasing power for everyday products.
Consumers are also hurt in other ways. Corporate tax hikes mean higher energy prices for families and businesses. Electricity and natural gas distributers are regulated utilities that generally must pass on increased costs directly to their customers as mandated by state law; therefore, customers directly bear these additional costs on utility companies.
Thankfully, the reverse is also true, as was demonstrated with the 2017 Tax Cuts and Jobs Act that slashed corporate rates from 35 percent to 21 percent. According to a report published in the trade publication Utility Dive, customers nationwide received a $90 billion utility benefit through some type of refund or credit in their energy bills.
When President Biden hinted at raising the corporate tax rates up to 28 percent, both the U.S. Chamber of Commerce and Americans for Tax Reform cautioned against such an action. They warned that each state would see an increase in utility bills, hurting families and businesses across the nation.
When residents in various states are already experiencing surging utility costs due to other factors such as overambitious “clean energy” goals (which incorporates too much intermittent and unreliable wind and solar), they can hardly afford even bigger increases due to higher tax rates.
Raising corporate tax rates hurts low-income households the hardest due to having less discretionary funds. Higher utility bills will put more strain on their budgets, making it increasingly difficult to afford even the basic necessities of life.
Small businesses already operate on tight margins and can’t afford higher heating, cooling, gas, and refrigeration costs. They too will be forced to pass some of these extra expenses on to their customers. This only means consumers will be paying more for their own utility bills as well as those for businesses through the higher costs on goods.
Corporate taxes permeate the economy and have often surprising impacts, higher energy rates are one such example. State and federal lawmakers ought to think twice before considering raising corporate tax rates.
Kristen Walker is a policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, follow us on X @ConsumerPal.