TIME FOR A REAL CHANGE: REPEAL THE CORPORATE INCOME TAX
March 17, 2009
The government often taxes an entrepreneur's profits twice, once at the business level and then again when the profits are distributed to individuals. This double taxation not only dampens the incentive to invest, but also obscures who actually bears the burden of these taxes. Because a corporation is made up of a group of individuals but is not actually an individual, corporate taxes are really taxes on the stakeholders in the corporation, , says Karen A. Campbell, a policy analyst with the Heritage Foundation.
Simulation results show that repealing the corporate income tax alone, which would cost approximately $300 billion in annual tax revenue, would produce by 2012:
- 2 million more jobs than the baseline scenario.
- $280 billion more in real (inflation-adjusted) gross domestic product (GDP).
- $4,000 more in real disposable income for a family of four.
- $707 billion more in household net wealth—the base of economic strength and stability.
According to a recent Organisation for Economic Co-operation and Development (OECD) working paper, of the three taxes (income, corporate, and consumption), corporate taxes are most harmful to economic growth. Other countries are aware of this and have steadily reduced their corporate tax rates. The United States has been the exception.
If Congress repealed the corporate income tax, investments would flow into the country. Multinational and international companies would be encouraged to operate in the United States, bringing jobs and new technology to meet today's economic challenges. Owners of corporations -- those who earn the profits -- would have more resources to invest in things that create value for others, says Campbell.
Eliminating the corporate tax would also encourage owners to hire and train people and to invest in their workforces because a more competitive tax structure would give corporations a greater incentive to domicile in the United States. Further, higher levels of investment would require new skills of employees. As these investments paid off, economic growth would occur, says Campbell.
Source: Karen Campbell, "Time for a Real Change: Repeal the Corporate Income Tax," Heritage Foundation, Backgrounder #2248, March 13, 2009.
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