Abolishing Corporate Income Tax Benefits Workers: NCPA Report

Eliminating or Reducing Corporate Taxes Would Up GDP, Wages

Source: NCPA

Eliminating the U.S. corporate income tax would dramatically increase domestic investment, GDP, real wages, and national saving, according to a new report by National Center for Policy Analysis Senior Fellow Laurence J. Kotlikoff.

America’s relatively high marginal tax rate discourages both U.S. and foreign corporations from operating or investing domestically. However, eliminating or even reducing the tax rate would benefit workers, corporations, and the national economy, says Kotlikoff, also director of the Tax Analysis Center.

According to Kotlikoff’s analysis, eliminating the corporate income tax would result in:

  • A rise in capital stock by 23 to 37 percent, with most of the added investment capital flowing into the U.S.,
  • A rise in real wages of 12 to 13 percent, and
  • A rise in GDP of 8 to 10 percent.

Even reducing the corporate tax would increase wages and GDP while producing just as much revenue. According to Kotlikoff, a “substantial, but still limited, roughly revenue-neutral reduction in the U.S. corporate tax rate produces growth effects that are pretty close to those arising under the complete elimination of the U.S. corporate income tax.”

In his analysis, Kotlikoff projects that reducing the current 35 percent tax rate to 9 percent and eliminating loopholes would produce:

  • A wage increase of 6 percent in the short run for high- and low-skilled workers, bumping up to 9 percent over the long run,
  • An immediate and permanent GDP increase of 6 percent, and
  • A capital stock increase of 17 percent in the short run and 30 percent by 2040.

Under the current tax system, the corporate tax “drives investment out of our country with surprisingly small benefit in terms of government revenues,” says Kotlikoff. “Eliminating the U.S. corporate income tax has great potential to make all Americans better off.”