January 15, 2012
Johnston: A Corporate Tax Code for a Different Century
Big business is lobbying for a major cut in the corporate income tax rate, and both President Barack Obama and key congressional leaders are on their side. But the evidence that a rate cut will boost the economy is weak. What’s needed is comprehensive reform that includes a simpler, fairer and more transparent corporate tax code. ...
Consider what President George W. Bush‘s Treasury Department said in a report in 2007: big countries, such as the United States, receive far less economic benefit from lower corporate tax rates than smaller countries do. For large countries, cutting corporate tax rates “would result partly in increased capital inflow and partly in lower world interest rates.” ...
The RATE Coalition, a group of 23 businesses and two trade associations, is among leading advocates for a cut in the corporate income tax rate from the current 35%. But it also wants that cut to be a part of fundamental reform. A cut of 10 percentage points would increase economic output by 1 to 2 percentage points, the coalition says on its website, citing a study by economists Roger H. Gordon of the University of California San Diego and Young Lee of Hanyang University in Seoul. But Gordon told me that while the paper shows that “lower corporate tax rates are associated with more rapid economic growth,” that point comes with a caveat. “We found these results only … for non-OECD (poorer) countries,” he emailed – there was no statistical relationship between lower corporate tax rates and faster economic growth among OECD countries, a coalition of 34 modern states spanning the globe and including the United States.
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