NCPA - National Center for Policy Analysis

Cutting Corporate Taxes: Higher GDP, More Jobs, Higher Wages

February 20, 2015

Opponents of tax reform will say that cutting the corporate tax rate will hurt federal revenues, but Andrew Lundeen, Director of Federal Projects for the Tax Foundation, says that's not so: were lawmakers to reduce the corporate tax rate, it would have minor effects on federal revenue over the long run. It would, however, have a major, positive impact on GDP.

Lundeen explains that high corporate taxes discourage investment, in addition to sending businesses abroad (or encouraging new businesses to incorporate abroad) to operate in countries with better tax systems. By cutting the corporate tax rate, the United States would see a stronger economy, not to mention more jobs -- and higher wages -- for Americans.

Currently, the federal corporate tax rate is 35 percent. According to Lundeen:

  • Getting rid of the corporate income tax would result in a 6.1 percent increase in the American economy.
  • On the other hand, increasing the corporate tax rate to 40 percent would result in a 1.1 percent drop in GDP and lower federal revenue by 0.3 percent.
  • Even worse, increasing the corporate income tax rate to 50 percent would mean a 3.5 percent reduction in GDP and a 1.2 percent reduction in revenue.

In fact, the NCPA has also modeled the impact of eliminating the corporate income tax, concluding that eliminating the corporate income tax would result in an 8 percent to 10 percent increase in GDP, in addition to a 12 to 13 percent rise in wages for all workers.

Source: Andrew Lundeen, "A Cut in the Corporate Tax Rate Would Provide a Significant Boost to the Economy," Tax Foundation, February 19, 2015. 


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