Download Tax Foundation Special Report No. 192: Ten Benefits of Cutting the U.S. Corporate Tax Rate
For a PDF of the full study, click here. A summary of the report and the key findings are below.
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. 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 taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual 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.”
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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