Republicans should make this argument when talking about business taxes

by Ryan Streeter on February 15, 2012. Follow Ryan on Twitter.

Republicans are mostly right about taxes and almost always bad at arguing about them.

Take the corporate tax rate. There’s widespread agreement among leading Republicans these days that the U.S. corporate tax rate is too high. They’re right, it is. But they usually argue that we need to get down to the level of our competitors (like the average voter cares what the “OECD average” is) or make some inane-sounding reference to how it will create jobs.

The real message, as Aparna Mathur makes today at The American, is that lower corporate tax rates are related to higher worker wages. This is the point Republicans should be making.

Aparna is a very smart researcher at AEI, and she has written a paper with the very smart Kevin Hassett (also one of the nicest economists in Washington) that has shown the relationship between corporate rates and wages. She writes:

When capital flows out of a high tax country, such as the United States, it leads to lower domestic investment, as firms decide against adding a new machine or building a factory. The lower levels of investment affect the productivity of the American worker, because they may not have the best machines or enough machines to work with. This leads to lower wages, as there is a tight link between workers’ productivity and their pay. It could also lead to less demand for workers, since the firms have decided to carry out investment activities elsewhere.

Our paper was one of the first to explore the adverse effect of corporate taxes on worker wages. Using data on more than 100 countries, we found that higher corporate taxes lead to lower wages. In fact, workers shoulder a much larger share of the corporate tax burden (more than 100 percent) than had previously been assumed…[W]hen taxes are imposed on a corporation, wages are lowered not only for the workers in that firm, but for all workers in the economy since otherwise competition would drive workers away from the low-wage firms. As a result, a $1 corporate income tax on a firm could lead to a $1 loss in wages for workers in that firm, but could also lead to more than a $1 loss overall when we look at the lower wages across all workers.

The left wants to focus on corporate profits and CEO wages. Republicans should say, yeah, we don’t really like seeing the rich get richer either, but that’s a fact of life and a kind of price we’ll all pay to have wages rise. Capital flows all over the globe in search of favorable environments. If getting more of it raises average workers’ wages, then let’s be all for bringing it here.

We definitely need more and better jobs and we need to see the unemployment rate drop farther. But we also need to see wages rise. That’s what working people care most about. Republicans take note.