Corporate tax increases will not stop inflation

As the nation suffers from record-high price increases, lawmakers deflect blame from themselves. While Democratic leaders in the Senate rant against the greed of American corporations that are using inflation to pad profits, the president and his administration continue to echo this message of increasing corporate taxes with it even appearing on his social media accounts.

These politicians are feigning ignorance that the real causes of inflation are an oversupply of money, resulting in too many dollars chasing too few products caused by disruptions to the supply chain.

There are two obvious ways to deal with inflation on the demand side: increase interest rates and curtail discretionary deficit spending. On the supply side, the president should be doing everything in his power to remove roadblocks to production and distribution. For instance, in the case of the recent baby formula shortage, the immediate answer was to remove restrictions on European baby formula.

Similarly, the president and Congress could work to reduce tariffs on imports from our allies as well as waving the requirements of the Jones Act that raise the cost of imports and increase delivery times.

Raising taxes on corporations is an indirect way of fighting inflation and it comes with some very real unintended consequences. The rationale for raising taxes on corporations to fight inflation is to reduce demand. However, if the president were interested in reducing demand, he would not still be promoting the idea of Build Back Better, which is a massive discretionary deficit spending spree.

Businesses that face these higher taxes will ultimately pass those taxes on to consumers. We could see a version of this at the fuel pump: as the national average for a gallon of gas approached $5, some U.S. Senators thought it was a good time to make life more difficult for energy companies. They were considering a “windfall profits tax,” risking a domestic oil production slow-down and further pressure on the American oil supply.

Beyond this, corporations will reduce their capital expenditures and likely reduce payroll by either slashing wages or cutting jobs. A recent study found corporate tax increases could lead to an average of 600,000 jobs lost over the next 10 years. If the problem of inflation is that it causes economic hardship to the working and middle classes, enacting policies that will result in corporate jobs and wage cuts is the wrong approach.

Businesses, employers and entrepreneurs are also suffering from the inflation that has been caused by overstimulating the economy with loose money and priming the pump with massive discretionary deficit spending. This pain is exacerbated by a labor shortage and supply chain crisis that has been the result of pandemic-era government restrictions and poorly designed government aid programs that have disincentivized return to work. Regardless of what you might think about the justification for those government restrictions during the pandemic, the resulting supply chain crisis and labor shortage were not the result of any decisions by companies or a result of their “greed.”

Piling on corporations is merely political scapegoating and grandstanding, exposing consumers and employees to the true costs. If the president were serious about fighting inflation, he would get the government out of the way, put Build Back Better on the back burner, and give companies room to do what they do best: create jobs and economic security for the American people.

Doug McCullough is partner of McCullough Sudan law firm in Houston.