Multiple news outlets have reported that House Democrats are planning to raise the corporate tax rate to 26.5%, from its current rate of 21%, through the reconciliation process. The revenue raised from this increase will fund critical programs that benefit American families, like expanding the child tax credit and including hearing and dental coverage in Medicare. However, while legislators typically focus on using the tax code to raise revenue for social programs, Congress should also consider using strategic changes to our tax code to incentivize businesses to do social good and support industries that provide job opportunities to disenfranchised communities.
For individual filers, there is a multitude of tax provisions that support the common good and personal development. For example, we can write off our charitable contributions, encouraging further giving. We can also write off the interest on our mortgages, encouraging home buying, which strengthens communities. Being able to deduct student loan interest, in addition to the Lifetime Learning Credit, makes it easier for students to afford going to, and staying in, school. And an educated populace benefits our country as a whole.
For businesses, however, most of the tax credits are focused on the cost of doing business itself. Businesses can write off office supplies and furniture, travel expenses, and rental payments. It is understandable that our tax code prioritizes these deductions, since they are effective at helping get businesses off the ground and can make or break small businesses in particular.
But as Congress looks to overhaul the tax code, members should also seize this opportunity to drive corporate behavior to do good through strategic tax incentives, including supporting businesses that provide job opportunities for working-class and underrepresented Americans.
Democrats have prioritized policies that address the climate crises. But given the magnitude of the problem, it is critical that the public and private sectors work together toward this common goal. Therefore, as Democrats work to update the tax code, they should include sustainability credits in the reconciliation package, which would effectively encourage investment in the creation and design of sustainable products. For far too long, it has been profitable to pollute the environment. With sustainability credits, we can begin to reverse this incentive and instead encourage the creation of green energy and products. This is just one example of the type of tax credit that could be used for good.
Additionally, as the economy continues to recover from the pandemic-induced recession, Congress must support the industries that are vital to our recovery, in particular those communities that have been negatively impacted by the pandemic in addition to facing systemic and structural inequities.
The retail sector, for example, employs segments of the country hardest hit by COVID-19. Roughly 56% of retail workers are women, and a higher percentage of retail workers are Black or Latino. Given this, it is disappointing that the retail sector has far fewer tax deductions than other businesses, in addition to having to pay an outsized tariff liability. These businesses were also deemed “non-essential” during the pandemic, so many had to close their doors and lose out on countless dollars of revenue. Democrats should support additional tax credits for sectors of the economy such as retail that create jobs for underrepresented populations.
The reconciliation package will result in a massive expansion of our social safety net. Hopefully, Democrats will also use this rare opportunity to couple a corporate tax rate increase with strategic changes to our tax code that drive corporate behaviors for the good of society, such as supporting job creation for disenfranchised communities and strong environmental actions.