To Help U.S. Workers Find Jobs, Eliminate or Slash Corporate Income Tax

April 17, 2014

Eliminating or greatly reducing America's corporate income tax "produces rapid and dramatic increases" in "U.S. investment, output and real wages," creating jobs for American workers and boosting the nation's gross domestic product (GDP) a full 6 percent, says Laurence Kotlikoff, a senior fellow with the National Center for Policy Analysis and an economist at Boston University.

  • At 35 percent, the United States currently has the highest marginal corporate tax rate among developed countries.
  • On March 31st, Moody's Investor Services reported that in 2013, non-financial U.S.-based businesses held $947 billion in cash overseas, up 12 percent from 2012.

The study uses a state-of-the-art, lifecycle computer model to track capital flow simulated by tax reform in the United States while assuming no changes in tax rates in Europe, Japan, China and India. It found that eliminating the corporate income tax would return a large amount of capital to the United States, where it would be put to use creating jobs and expanding productivity.

  • Kotlikoff acknowledges that many people may view the study's recommendations as letting big corporations off the hook by not making them pay their "fair share," so he prefers to think of it as "repositioning" the corporate income tax instead of eliminating it.
  • "There's a big problem with the public's understanding of who actually pays and doesn't pay" the corporate income tax, says Kotlikoff. "Corporations are not people. Their owners are people, and the tax breaks are going to them."
  • The study assumes that most tax breaks and loopholes would also be eliminated, except for certain progressive features such as the earned income and child tax credits.

One major reason to reform the corporate income tax, which generates just 1.8 percent of the nation's GDP, is to attract capital back to the United States to save the country from fiscal collapse.

  • Using the Congressional Budget Office's own Alternative Fiscal Scenario figures, Kotlikoff calculates that the federal government's true indebtedness -- when all of its off-book obligations, including Social Security, Medicare and other entitlement programs are considered -- is nearly 12 times larger than the $17.5 trillion total public debt outstanding cited by the U.S. Treasury Department.
  • Absent major reform, "I don't think we have a good end-game except to print more money," he says.

Source: Barbara Hollingsworth, "Study: To Help US Workers Find Jobs, Eliminate or Slash Corporate Income Tax," CNS News, April 15, 2014. Laurence J. 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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