The Effects Of Lower Corporate Tax Rates On The Overall Economy
Tax Foundation recently conducted a study on the effect of lower corporate tax rates on the overall economy. The article summarizing their findings is linked below for those interested in tax reform. While we can’t verify all the figures, the article seems to point out that the tax revenue reduction can at least partially be offset by increase in GDP and its contribution to a wider base of corporate income on which to levy tax. Additionally, 500,000 new jobs ought to help tax revenues as personal income taxes become collectable from more people. A few highlights from the article:
- Using the Tax Foundation’s Taxes and Growth (TAG) Model, this paper simulates both the economic benefits and budgetary costs of a cut in the corporate income tax rate from the current 35 percent to the OECD average corporate income tax rate of 25 percent, the current UK corporate income tax rate of 20 percent, and the Canadian federal corporate tax rate of 15 percent.
- A reduction in the corporate income tax rate to 25 percent would increase the size of GDP by 2.3 percent at the end of the adjustment period. A further cut to 20 percent would boost long-term GDP by 3.3 percent. A cut to the Canadian federal corporate income tax rate of 15 percent would have the largest impact, increasing GDP by 4.3 percent over the long-term.
- Workers would also benefit from a corporate rate reduction. Depending on the size of the corporate rate reduction, we would expect to see an additional 425,000 to 613,000 new jobs, and wages would increase by between 1.9 percent and 3.6 percent over the long-term.
- Regardless the size of the corporate tax cut, the larger GDP would translate into higher after-tax incomes for taxpayers up and down the income scale.
- Using conventional scoring, these three corporate tax cuts to 25, 20, and 15 percent would cost $1.2, $1.8, and $2.5 trillion over the next ten years. However, using the more realistic assumption that these cuts would increase the size of GDP, their costs would be closer to $746 billion, $1.1 trillion, and $1.5 trillion over the next decade.