Abolishing the Corporate Income Tax

January 7, 2014

Eliminating the corporate income tax would do much to mitigate the plight of workers who are struggling due to the recession, a decline in manufacturing and foreign competition, says Laurence Kolitkoff, National Center for Policy Analysis senior fellow and economics professor at Boston University, in the New York Times.

Many people view the corporate income tax as something that affects only the rich. But rather than hurt capitalists, the corporate income tax really hurts workers. At the same time, the tax collects very little revenue. To avoid paying the tax, many companies move their operations -- and corresponding jobs -- overseas.

Kotlikoff and his colleagues at the Tax Analysis Center, a project of the NCPA, have developed a large-scale model that simulates the American economy as it interacts with other nations' economies.

  • When the corporate income tax is dropped to zero and lost revenue is replaced with somewhat higher personal income tax rates, the model demonstrates that investment will skyrocket, and output and real wages will rise dramatically. Capital stock (machines and buildings) rises by 23 percent, while output rises by 8 percent and real wages of all workers increases by 12 percent.
  • If the tax is lowered to 9 percent, making it revenue-neutral, capital increases by 17 percent, output by 6 percent and real wages by 8 percent.

Americans' average weekly earnings, adjusted for inflation but not including fringe benefits, are a full 10 percent lower today than they were in 1966. Corporate tax reform could turn things around for American workers and lead to a raise in real pay.

Source: Laurence J. Kotlikoff, "Abolish the Corporate Income Tax," New York Times, January 5, 2014.

 

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