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Taxes have played a prominent role in this year’s presidential election. On the left, Vice President Kamala Harris has promised to help the middle class by making corporations pay their fair share. On the right, former President Donald Trump has vowed to support working families by implementing a litany of tariffs.
Both camps claim that their respective tax hikes would only be felt by corporations or other countries. In reality, Arizonans would pay the price.
Harris has endorsed raising the corporate income tax rate from 21% to 28%. Federal taxes are only one layer in the U.S. economy, and many states levy corporate taxes, too. Arizona has a 4.9% corporate rate, meaning under Harris’s plan, the combined corporate tax rate in Arizona would rise to 32.9%. That’s higher than Mexico (30%), China (25%), and the worldwide average (23.6%).
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Research finds that corporate taxes are the most harmful to economic growth, and for countries and states vying for new businesses, the corporate tax rate influences where businesses choose to open shop. Our competitors know this: Since 1980, the average statutory corporate tax rate has declined in every region across the globe.
Domestically, states are taking notice, too. Arizona is competing for companies and jobs with places like Nevada and Texas — two states that forgo corporate income taxes entirely. A higher corporate rate at the federal level makes the neighbors much more attractive for companies that operate on the margins.
Higher corporate taxes also hurt pocketbooks. Economists across the political spectrum agree that the corporate tax is paid in part by workers. A recent study finds that 60% of the corporate tax is paid by laborers, often in the form of lower wages. More conservative estimates, including those followed by Congress’s nonpartisan scorekeepers, say 25% of the corporate tax is borne by labor.
But no matter the threshold, Arizonans would pay part of the price. If the corporate tax rate were increased to 28%, a worker in Arizona could see an annual wage loss of up to $527 per employee.
A higher corporate tax would be an unsound way to raise more revenue. But the other side is offering an equally harmful alternative.
Trump has long been a fan of tariffs, but this election cycle has seen a stronger embrace of a protectionist agenda than ever before. He has proposed a 20% universal tariff, a 60% tariff on China, and even a 200% tariff on Mexican cars. If imposed, the US would be imposing its highest rate of tariffs since the Great Depression.
While the Trump camp is claiming other countries will be the ones to pay the price, the opposite is true. Though trade wars hurt both countries involved, taxpayers in Arizona and across the country already experienced slower growth, higher prices, and smaller incomes during Trump’s trade war, and his new proposal would be an escalation of that.
Revenue is only part of both candidates’ platforms, and both parties would say it’s important to consider the tax cuts they are proposing for families too. But tax cuts cost money, and the approaches our candidates are taking to raise that money are harmful and could offset other forms of tax relief.
Supporting families and entrepreneurs through the tax code is achievable, but the way to pay for tax relief matters. Policies that broaden the base — such as repealing the green tax credits from the Inflation Reduction Act that are ballooning in cost — would be less distortive than higher tariffs or corporate tax hikes.
Arizonans deserve to know how the candidates’ plans would actually impact their wallets — and our candidates should turn away from harmful tax hikes and move toward sounder solutions.
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