Simulating the Elimination of the U.S. Corporate Income Tax

January 6, 2014

Replacing the current 35 percent corporate income tax with a more broadly based rate of 9 percent would increase wages for all workers, increase gross domestic product (GDP) and still produce just as much revenue, according to a study 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," say NCPA Senior Fellow and director of the Tax Analysis Center Laurence Kotlikoff.

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 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.

Source: Laurence Kotlikoff et al., "Simulating the Elimination of the U.S. Corporate Income Tax," National Center for Policy Analysis, January 6, 2014.

 

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