Corporate tax rates directly impact utility ratepayers. A line item on bills called the Tax Expense Adjustor Mechanism automatically increases, or decreases utility rates when officials in Washington increase, or decrease the federal corporate tax rate.
As an Arizona public utility commissioner, I have seen no more direct and immediate impact to utility rates than increases and decreases to corporate tax rates at the federal level.
In 2017, for example, the Tax Cuts and Jobs Act reduced the corporate tax rate by as much as 18 percentage points for some corporations. It also allowed more than 100 public utilities across the nation to return $90 billion to customers.
This resulted in many of Arizona’s largest utility providers—including Arizona Public Service Company, Tucson Electric Power Company, EPCOR, Liberty Utilities, and Southwest Gas to pass savings directly to customers and reduce rates.
I understand the impacts of corporate tax reform go both ways. When federal lawmakers increase the corporate tax rate, they also increase customers’ bills.
President Biden has repeatedly promised he would not increase taxes on anyone earning under $400,000 annually. Due to the way public utility rates are set, however, corporate tax hikes would flow directly to customers and result in an indirect tax on anyone who simply pays their monthly utility bills – including anyone earning under $400,000 annually.
While corporations in other industries can sometimes absorb these increases and keep their prices competitive, public service corporations such as electric and water utilities cannot make the same adjustments because their rates are set by state utility regulators, not corporate executives.
As a result, raising federal corporate taxes by seven percentage points, as the White House has suggested, will increase millions of Americans’ energy and water bills. It will also make it harder for state public utility commissions to authorize legitimate rate increases, such as for infrastructure, thereby putting health and safety at risk.
As many Americans struggle to recover from the economic downturn caused by the pandemic, it concerns me Biden is asking federal lawmakers to raise the corporate tax rate by as much as 33%.
The increase would undo the gains we’ve made over the past four years. It would increase out-of-pocket costs and have a direct and immediate impact, making it more expensive for low-income families to cool their homes and small business owners to run their businesses. It will increase the amount everyone has to pay for monthly utilities, including water and electricity, which powers our economy. It’s going to affect public utility customers across the nation.
While Biden’s vision to “build back better,” and his commitment to invest in the nation’s aging infrastructure is promising, there are better ways to pay for it—like closing tax loopholes to ensure all businesses pay their fair share, improving the regulatory climate in state public utility jurisdictions, and growing the nation’s economy.
Raising the federal corporate tax rate at this time is not the answer, and, in fact, it would undermine the Administration’s mission to protect hard-working citizens and vulnerable populations, which spend a disproportionately larger part of their income on utility bills.
It is now incumbent on Congress to stand up for utility ratepayers across the nation and say “no” to indirect tax hikes on our families and small businesses. I urge Arizona’s Senators to vote “no” on any unjust and unreasonable increase to the U.S. corporate tax rate.
Lea Márquez Peterson is the Chairwoman of the Arizona Corporation Commission. The Commission will be hosting a public workshop in the near future on the impact of federal administration programs and proposals on Arizona ratepayers.