In announcing the proposed tax hike, the Harris-Walz campaign said it was part of its plan to make sure corporations and billionaires “pay their fair share.” That’s a well-worn weasel term politicians use that is arbitrary, subjective and typically defined by ideological leanings.Marco Bello/Reuters
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
While many U.S. businesses are cringing at the news that a Harris-Walz administration would raise the federal corporate tax rate sharply, some states are quietly licking their chops at the prospect.
That’s because the proposed bump-up in the tax rate announced by the Democrat ticket’s campaign this week – to 28 per cent, from the current 21 per cent – will likely accelerate a trend that has been reshaping the economic balance of power in the United States for the past few years: The migration of companies from high-tax, high-regulation environments such as New York, California and Illinois, to no-income-tax, business-friendly states such as Texas, Florida, Tennessee and Wyoming.
While the proposed federal tax hike would be nationwide, the added burden on companies would make the low state taxes of some regions all the more attractive.
The shift in the past years has not been insignificant. New York, for example, has lost nearly 160 companies in the past five years because of choking regulations and state corporate tax rates of up to 7.25 per cent on top of the federal levy. The cost of doing business in the state, including attracting and retaining talent, has fuelled the exodus, mainly to Florida and Tennessee. Big names such as Icahn Capital Management, Elliott Management, Alliance Capital and ARK Investment Management have taken with them more than a trillion dollars in assets and high-paying jobs.
Chicago, too, has seen a rush of businesses out of town, many of them iconic names such as Boeing, Caterpillar, Citadel and Tyson Foods, because of crushing tax burdens, tight regulation and rising crime. Morton Salt announced plans last week to move its headquarters out of Illinois, where the state corporate tax rate is 9.5 per cent. Financial services companies have been even more nervous as the city’s new mayor has toyed with imposing a tax on each financial transaction that flows through Chicago’s trading desks.
In California, where the state corporate tax rate is close to 9 per cent, the flight of both capital and jobs has been significant. Since 2020, well-known companies such as Tesla, Chevron, Oracle and Charles Schwab have left.
Florida and Texas, which are the fast-growing states in the union, would clearly welcome anything that would trigger more migration from north to south or west to east and stoke their already white-hot economic furnaces.
Both states have been aggressive in luring companies from other states, particularly New York and California, with the no-tax, low-regulation pitch. Florida Governor Ron DeSantis has been selling New Yorkers on the Sunshine State for some time, with so much success that New York Mayor Eric Adams launched an online and outdoor billboard campaign a year ago urging New Yorkers not to move.
Along with his Florida counterpart, Texas Governor Greg Abbott has also targeted technology companies in California with juicy business development plans and incentives.
The success of these programs has been both a brain-drain and a tax revenue drain for California to the point where its governor, Gavin Newsom, has been considering imposing what amounts to an exit tax on those who leave the state.
In addition to accelerating interstate migration, a high corporate tax rate could trigger more companies to once again look overseas for ways to trim costs by seating manufacturing and assembly in countries with lower labour costs. That would be a reversal of the trend under the Trump administration, which made the repatriation of U.S. companies, revenue and jobs a key pillar of its American First program. The Trump administration had slashed the corporate tax rate from the Obama-era high of 35 per cent to the current 21 per cent.
In announcing the proposed tax hike, the Harris-Walz campaign said it was part of its plan to make sure corporations and billionaires “pay their fair share.” That’s a well-worn weasel term politicians use that is arbitrary, subjective and typically defined by ideological leanings. In this case, Democrats believe fair share means higher taxes; Republicans tend to believe in lower rates as a way to stimulate economic growth and prosperity.
Such a tax increase would be part of a Harris-Walz administration’s widespread rollback of Trump-era tax breaks, both personal and corporate. Former president Donald Trump has said that if elected he would make those tax cuts permanent.
For companies fretting about the prospect of a higher corporate tax rate on top of already high state levies, there is a ray of hope. Any changes to federal tax policy must be approved by Congress. That means if the Republicans hold power in either the House or the Senate – or both – it’s unlikely the increase would be approved, or at least not at that level.
For now, however, it’s a central promise of the Harris-Walz economic plan – a plan that may have the unintended consequences of further hurting the Democrat-run cities and states that are already losing business.