NCPA - National Center for Policy Analysis

The Economic Impact of a 25 Percent Corporate Income Tax Rate

December 16, 2010

One way to spur private sector investment in the United States and get it into the hands of entrepreneurs would be to reduce the federal statutory corporate income tax rate, which is currently 35 percent, according to Karen A. Campbell and John L. Ligon, policy analysts at the Heritage Foundation.

The Heritage Foundation's Center for Data Analysis (CDA) conducted a dynamic simulation of a reduction of the corporate income tax rate to 25 percent, comparing it to a baseline forecast of the economy with the current policy of a 35 percent corporate rate.  The results of this simulation show the U.S. economy growing faster than the baseline in the 2011-2020 forecast horizon.

The CDA analysis of a reduction in the corporate income tax rate to 25 percent shows impressive growth for the U.S. economy.  For example:

  • The number of jobs in the United States would grow on average by 581,000 annually from 2011 to 2020, with 531,000 on average being created in the private sector each year.
  • U.S. real gross domestic product would rise on average by $132 billion per year.
  • A typical family of four's after-tax income would rise on average by $2,484 per year.
  • U.S. capital stock would grow by an average of $240 billion more per year.
  • Gross private domestic investment would increase by $57.2 billion per year.

Reducing the corporate rate would make investing in the United States -- by both domestic and international firms -- more attractive.  The lower rate provides an incentive for foreign corporations to make investments in the United States, say Campbell and Ligon.

Source: Karen Campbell and John Ligon, "The Economic Impact of a 25 Percent Corporate Income Tax Rate," Heritage Foundation, December 2, 2010.

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