New Analysis: Little Growth From Temporary Corporate Rate Cut

June 12, 2017

With federal lawmakers struggling to agree on a plan to comprehensively reform the tax code, some have suggested adopting a temporary corporate tax cut to provide a boost to the economy.

However, new research from Tax Foundation Economist Alan Cole shows that a temporary corporate rate cut would do little to help the economy, and would more likely result in increased dividends for shareholders than increased wages.

Key Findings:

  • A temporary cut to the corporate income tax rate is substantially less effective at generating growth than a permanent one.
  • A ten-year reduction in the U.S. corporate income tax rate to 15 percent would boost investment and growth over the first seven years of the policy, but reduce growth after.
  • The specter of a future tax increase makes investment under the low rate less enticing, especially for long-lived assets.
  • The benefits of a temporary corporate income tax cut are likely to accrue mostly to shareholders of corporations; a permanent corporate income tax cut is more likely to result in increased wages.

“A tax reform effort should hope to boost incomes for all, and a corporate income tax cut could be a means to do it,” Cole writes. “However, a large but short-lived reduction in corporate income taxes may be largely a windfall for investors, pension funds, and retirement accounts, with precious few broader benefits to the economy at large.”

For more information, contact:

John Buhl
Media Relations Manager
Tax Foundation
202-464-5120 (office)

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.