Ten Benefits of Cutting the U.S. Corporate Tax Rate

May 11, 2011


For a PDF of the full study, click here.
A summary of the report and the key findings are below.

Tax Foundation Special Report No. 192

Introduction

There is near unanimous bipartisan agree­ment in Washington that the U.S. corporate tax rate is out of step with rates levied by most industrialized nations and that America's global competitiveness is suffering as a result. What seems to be lacking to fix the problem, however, is a sense of political urgency and a broader understanding of the substantial economic ben­efits that a lower corporate tax rate will generate.

President Obama's two bipartisan "blue ribbon" panels—the Economic Recovery Advisory Board, chaired by Paul Volcker, and the National Commission on Fiscal Responsibil­ity and Reform, chaired by Erskine Bowles and Alan Simpson—made strong cases for cutting the corporate tax rate and reforming the entire corporate tax system. The Economic Recovery Advisory Board, for example, found that:

The combination of a high statutory rate and numerous deductions and exclusions results in an inefficient tax system that dis­torts corporate behavior in multiple ways. The high statutory corporate tax rate reduces the return to investments and therefore discourages saving and reduces aggregate investment.

The so-called Bowles-Simpson report simply concluded that "America's tax code is broke and must be reformed." Moreover, the corporate income tax "hurts America's ability to compete. On the one hand, statutory rates in the U.S. are significantly higher than the aver­age for industrialized countries (even as revenue collection is low), and our method of taxing foreign source income is outside the norm... The current system puts U.S. corporations at a competitive disadvantage against their foreign competitors."

Some key members of Congress have moved the debate forward with serious plans to cut the corporate income tax rate. For example, the House-passed budget resolution for 2012 calls for cutting both the corporate rate and individual tax rates to 25 percent. In the other chamber, Senators Ron Wyden (D-OR) and Dan Coats (R-IN) have introduced the "Bipar­tisan Tax Fairness & Simplification Act of 2011" that would cut the corporate rate to 24 percent. While many lawmakers are understandably concerned about the budgetary consequences of cutting the corporate tax rate, they should give greater weight to the benefits that such a move would mean to the American economy. Grow­ing the economy and making the U.S. more competitive are critical solutions to the long-term fiscal issues facing the nation.

While there are many benefits of cutting the U.S. corporate tax rate, we've compiled 10 that should help convince lawmakers that this is the right policy direction for the nation.

Ten Benefits of Cutting the U.S. Corporate Tax Rate

1. Cutting the corporate tax rate will promote higher long-term economic growth.

2. Cutting the corporate tax rate will improve U.S. competitiveness.

3. Cutting the corporate tax rate will lead to higher wages and living standards.

4. Cutting the corporate tax rate will boost entrepreneurship, investment, and productivity.

5. Cutting the corporate rate lowers the tax burden on low-income taxpayers and seniors.

6. Cutting the corporate rate will lower the overall dividend tax rate and taxes on capital.

7. Cutting the corporate tax rate can attract foreign direct investment (FDI).

8. Cutting the corporate rate would lead to lower corporate debt and reduce the incentives for income shifting.

9. Cutting the corporate tax rate can reduce compliance costs.

10. Cutting the federal corporate rate can help the states compete globally.

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