California Governor Gavin Newsom has called for an increase to the federal corporate tax rate to 35 percent. Highest in the developed world.

Newsom recently wrote on his substack: “This country also needs to return to pre-2017 corporate tax rates.”

Newsom also said in an interview that it is, “time as well to return to the pre-2017 corporate tax rates.“

That means a 35 percent federal corporate tax rate.

American households bear the burden of the corporate tax. The cost of the tax is passed on to them. Households pay the tax in the form of slower wage growth, higher costs of goods and services, and reduced nest egg values such as 401k accounts and pension plans.

What Newsom is proposing is not a minor adjustment. Prior to the Tax Cuts and Jobs Act of 2017, the policy to which he refers, the federal corporate income tax rate stood at 35 percent. President Trump and Congressional Republicans permanently reduced that rate to 21 percent. There hasn’t been a tax-related corporate inversion since.

Newsom’s tax hike would drive American companies overseas because his tax burden would threaten their survival and their ability to create American jobs.

Newsom is accustomed to using high taxes to drive people and companies away from California. For the sixth consecutive year, California has finished dead last in the U-Haul index.

Newsom Wants America to Tax American Businesses At a Higher Rate Than China and Venezuela

According to the Organization for Economic Co-operation and Development (OECD), the average corporate income tax rate among the 38 OECD nations stands at approximately 24 percent. If Newsom imposed a federal corporate tax rate of 35 percent, the United States combined rate (including average state corporate tax rates) would rise to over 39 percent, putting the United States far above the current OECD average and making it the highest corporate tax jurisdiction in the developed world.

Remarkably, the plan would leave American businesses facing higher taxes than companies operating in Communist China. China’s corporate tax rate is 25 percent.

And companies classified by the Chinese government as a “High and New Technology Enterprise” pay a 15 percent corporate tax rate. These companies include Huawei, Tencent, Alibaba, Baidu and many others.

Newsom’s rate would be even higher than one of the world’s most economically dysfunctional governments. Venezuela imposes a standard corporate tax rate of 34 percent. It’s hard to imagine a more compelling indictment of Newsom’s proposal.

Politicians across both parties have been in agreement that the United States must compete effectively with China, but Newsom’s plan would unilaterally put American companies at an extreme competitive disadvantage.

Higher Corporate Tax Rates Mean Higher Utility Bills

American households directly bear the cost of corporate income taxes imposed on utility companies.

Electric, gas, and water companies have their billing rates reviewed and approved by the respective state utility commissions. The commissions build the cost of taxes directly into the rates imposed on customers.

So if Newsom raises the federal corporate tax rate, he will have to explain why he just raised the cost of your utility bills.

It also works in the other direction. Americans for Tax Reform compiled over 300 examples of utilities passing along tax savings to customers following enactment of the 2017 Tax Cuts and Jobs Act, the bill that cut the corporate rate from 35 percent to 21 percent.

Extreme Plan Even By Democrat Standards

Newsom’s proposal even lurches to the far left of Democrat tax policy. President Obama proposed lowering the corporate tax rate from 35 percent to 28 percent, arguing that the lower rate would make the United States more competitive. President Biden later campaigned on raising the rate to 28 percent from the TCJA implemented 21 percent. Kamala Harris also backed a 28 percent corporate rate in 2024.

That means Newsom’s position is not even aligned with the Obama-Biden framework. It is actually aligned with the most radical proposal: Bernie Sanders’ 2024 proposed legislation to return to the 35% corporate rate. Newsom is embracing the tax policy of a self-described democratic socialist and trying to impose it on the entire country.

What is at Stake

This proposal is more than another tax hike, it also makes the United States less competitive than our allies and our adversaries. Higher corporate taxes mean less investment, slower wage growth, decreased job creation, and higher costs for American families.

Academic research on the harm of corporate tax increases can be found here.

The United States spent decades struggling under the noncompetitive 35 percent corporate tax rate before the TCJA modernized the tax code. Gavin Newsom’s plan would reverse that progress and make the United States a self-destructive outlier in the global economy.

California’s high-tax model has already driven businesses and residents from the state. These households and businesses move to lower tax jurisdictions. America should not be forced to repeat California’s mistakes.