Corporate Income Tax Could Be Replaced By A 9 Percent Tax on All Profits


by Brion Namuyco

Source: US Daily Review

Replacing the current 35 percent corporate income tax with a more broadly based rate of 9 percent would increase wages for all workers, increase GDP and still produce just as much revenue, according to a major study just released by the Tax Analysis Center, a new nonprofit tax research center sponsored by the National Center for Policy Analysis. "Most people think the corporate tax hits the rich, whereas most economists think it hits workers. The study confirms this. It shows that American workers are big winners under a 9 percent corporate flat tax," said the study's coauthor Laurence Kotlikoff, director of the Tax Analysis Center, Professor of Economics at Boston University and NCPA Senior Fellow. "Lower corporate tax rates mean dramatically more corporate investment in the U.S. and that means significantly higher wages."  Professor Kotlikoff's op-ed outlining the new corporate income tax plan was published today in The New York Times.  According to the study's model, a 9 percent corporate flat tax would:     

  • Immediately and permanently raise GDP by roughly 6 percent

  • Increase the capital stock by 17 percent in the short run and by 30 percent by 2040

  • Increase wages about 6 percent in the short term, eventually increasing by 9 percent

      The lower rate could be achieved by eliminating loopholes such as accelerated depreciation, bonus depreciation and deferring foreign-earned income.  "The current high corporate tax rate keeps capital outside the country," added Professor Kotlikoff.  "With less capital, our output is lower and so are workers' wages. Our country has an historically low rate of net domestic investment. It's time to turn this situation around."  The Tax Analysis Center uses a state-of-the-art dynamic, multi-national simulation model to explore the economic impacts of alternative revenue-neutral corporate tax reforms. This latest Tax Analysis Center study was also released by the National Bureau of Economic Research as part of their working paper series.