Can a Corporate Cut Lead to Higher Tax Revenue?

October 1, 2008

The cause for cutting the U.S. corporate tax rate has been bolstered by a new study, How Cutting Corporation Tax Would Boost Revenue, released by the Conservative Way Forward in Great Britain. The study looks to see what effect, if any, changes in corporate tax rates have on tax revenues for "high-income" OECD countries in the years 1998 to 2005.

The study, authored by economists at the Taxpayer Alliance in London, "suggests [that] corporate tax cuts have a significant, positive, impact on revenue growth." "In particular, it appears that a cut of ten percentage points in the corporate tax rate will lead to an over 5 per cent increase in annual corporate tax revenue growth."

The authors conclude that because of globalization, "national governments are less and less like monopolies that can increase their ‘prices' (taxes) and extract more from their ‘customers' (taxpayers) and more like companies in a competitive market who must do all they can to offer an attractive combination of quality services at an affordable price.

In this world of high capital mobility, countries with low taxes can enjoy dynamic returns in the form of higher economic growth, employment and tax revenue. Corporate tax cuts can encourage entrepreneurship, increase investment and reduce the size of the informal economy."

For the complete study, go to: http://www.conwayfor.org/Files/MediaFiles/CWF%20corporation%20tax%20paper%20FINAL%20lowres.pdf


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