DIMON: America's high corporate tax rate is doing 'considerable damage'
Billionaire JPMorgan CEO Jamie Dimon says that lowering corporate taxes in the US would create more jobs and increase wages for American workers.
“America now has the highest corporate tax rates among developed nations,” Dimon wrote in JPMorgan Chase’s (JPM) annual shareholder letter published on Tuesday.
Overall, Dimon’s letter had a positive outlook for the US. That said, he thinks there are a number of things holding the country back, including high corporate taxes.
“Most other developed nations have reduced their tax rates substantially over the past 10 years (and this is true whether looking at statutory or effective tax rates). This is causing considerable damage,” Dimon said.
A corporation operating in the United States can expect to pay a 35% federal corporate tax rate, according to tax data compiled by Deloitte. Countries such as Ireland and Germany have substantially lower rates of 12.5% and 15%, respectively.
Dimon says high corporate taxes can cause a company CEO to open a new plant or research and development facility in a country with a lower rate.
“American corporations are generally better off investing their capital overseas, where they can earn a higher return because of lower tax rates. In addition, foreign companies are advantaged when they buy American companies — often they are able to reduce the overall tax rate of the combined company,” Dimon wrote.
“Because of this,” he continued, “American companies have been making substantial investments in human capital as well as plants, facilities, research and development (R&D) and making acquisitions overseas. Also, American corporations hold more than $2 trillion in cash overseas that has not been brought back to the United States because of the additional taxes that would be incurred. The only question is how much damage will be done before we fix this. ”
“Reducing corporate taxes would incent business investment and job creation,” Dimon wrote, pointing out that, “Job growth is highly correlated to business investment (this also makes intuitive sense).”
In addition, he believes that lower corporate tax rates would benefit lower-paid Americans because they would likely see their wages rise. “Counterintuitively, reducing corporate taxes would also improve wages. One of the unintended consequences of high corporate taxes is that they actually depress wages in the United States,” Dimon wrote.
He pointed to a handful of studies to back this claim.
“A 2007 Treasury Department review finds that labor ‘may bear a substantial portion of the burden from the corporate income tax.’ A study by Kevin Hassett from the American Enterprise Institute finds that each $1 increase in US corporate income tax collections leads to a $2 decrease in wages in the short run and a $4 decrease in aggregate wages in the long run. And analysis of the US corporate income tax by the Congressional Budget Office finds that labor bears more than 70% of the burden of the corporate income tax, with the remaining 30% borne by domestic savers through a reduced return on their savings,” Dimon wrote.
Dimon concluded: “We must fix this for the benefit of American competitiveness and all Americans.”
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Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.
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