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Contra Every Major Study, EPI Claims Corporate Tax Does Not Affect Growth

1 min readBy: William McBride

Thomas Hungerford, now at Economic Policy Institute, has a new paper in which he claims:

Lowering the corporate income-taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate would not spur economic growth. The analysis finds no evidence that high corporate tax rates have a negative impact on economic growth (i.e., it finds no evidence that changes in either the statutory corporate tax rate or the effective marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. on capital income are correlated with economic growth).

The problem with this analysis is that it is completely out of line with the economic literature, reviewed here. Every major study published in peer-reviewed journals finds the corporate tax harms economic growth. Has Hungerford discovered a new way to analyze the effects of corporate taxes, unknown to the economics profession? No, as Matt Yglesias points out, he merely did not account for the long run effects of the corporate tax. These effects are huge, since the corporate tax is mainly a tax on investment, which takes years to come about.

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