Reducing Corporate Income Tax Rate Would Bolster Economy

Reducing corporate income tax rate would bolster growth in the world’s largest economy, and the larger tax base would make any revenue loss minimal in the long run, The Tax Foundation stated recently.

The nonpartisan think tank is certainly not alone in supporting this reducing corporate income tax rate, as many experts have called for such a change.

Obama proposal

The Tax Foundation touted the benefits of lowering the corporate income tax rate shortly after Pres. Barack Obama proposed an overhaul of corporate tax policy. During his State of the Union speech earlier this year, Obama outlined his plan, which would involve closing loopholes in exchange for reducing the top corporate income tax rate to 28 percent from its existing level of 35 percent.

Currently, the U.S. has the highest top corporate income tax rate of any major economy in the world. To pay for this reduction in the top rate, the proposal would eliminate many specific breaks that make it so companies in different industries can skirt taxes.

Creating an even playing field

When the Obama Administration announced the proposal, Treasury Secretary Timothy Geithner elaborated on the policy’s intended outcome, according to U.S. News and World Report.

“We want to restore a system in which American businesses succeed or fail based on the products they make and the services they provide, not on the creativity of their tax engineers or the lobbyists they hire,” he stated, the media outlet reported.

Eliminating corporate income tax

Obama’s proposal has certainly drawn its supporters, who contend reducing the corporate income tax would make the U.S. more competitive, according to the news source. However, some favor a more comprehensive approach, preferring that the federal government opt to eliminate the corporate income tax entirely.

The Tax Foundation has delved into the outcome of scrapping this particular policy, elaborating on how it would affect both business investment and also the size of the economy. In terms of the first benefit, eliminating the corporate income tax would effectively lower the minimum threshold companies need to get an adequate return on investment from purchasing capital equipment.

By reducing this tax, lawmakers would provide companies with greater incentive to invest in new items used for production and running businesses. Providing corporations with this particular motivation could in turn generate a handful of benefits.

If companies began buying more equipment, paying for such items would help circulate money throughout the economy. In addition, it could potentially create enhanced productivity for the firms buying the items by helping their workers get more accomplished with less time and effort.

Bolstering federal tax revenue

In addition, The Tax Foundation has asserted that by increasing business investment, eliminating the corporate income tax would spur job creation and push wages higher. By having this positive impact on the labor market and putting more money in people’s pockets through lower corporate income tax rates, the change would enhance federal tax revenue over the long-term.

However, this income would likely shrink in the short-term as the economy adapted to the new policy, The Tax Foundation noted. More specifically, the nonpartisan think tank estimated that scrapping the corporate income tax would cause the federal government to automatically forego $273.5 billion in corporate tax revenue, according to The Washington Examiner.

However, within a time frame of approximately 10 years, the new policy would cause payroll, income and other tax revenues to enjoy a $273.9 billion annual gain, the media outlet reported. If such an increase came to fruition, eliminating the corporate income tax would generate no loss in revenue over the long term.