Policy Documents

Research & Commentary: Why the U.S. Should Cut its Corporate Tax Rate

November 9, 2009

What the U.S. economy needs more than another pork-filled stimulus plan or massive new spending proposal is a cut in the corporate tax rate.

The United States currently has the second-highest combined state and federal corporate tax rate in the industrialized world, at 39.1 percent. Twenty-four states have combined federal and state corporate tax rates exceeding that of top-ranked (and depression-wracked) Japan. An OECD study affirms that "corporate taxes are found to be most harmful for growth."

Corporations don't pay taxes; people do. Shareholders, employees, and consumers all end up shouldering the burden of these taxes. These taxes lower shareholders' return on investment, and the government receives less tax revenue from these investments. An Oxford University Centre for Business Taxation study notes, "a substantial part of the corporation income tax is passed on to the labor force in the form of lower wages." And taxes raise the consumer price of a good or service, further suppressing economic activity.

Cutting corporate tax rates would bring higher shareholder earnings and more capital investment, higher wages for workers, and lower prices for goods and services. Reducing our corporate tax rate to a more competitive level would be the fastest and most efficient way to jumpstart our economy. This would not be just a onetime boost, but instead would foster long-term economic growth by bringing more capital into the private sector.

We cannot continue to tax our businesses a whopping three times as much as Ireland taxes its. The longer our corporate tax rates remain so uncompetitively high, the less economic growth we will enjoy in the coming years. U.S.-based businesses will continue to struggle in the global economy, and there will be fewer American jobs and more business failures.

The documents linked below offer additional information about corporate taxes.

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The Case for Corporate Income Tax Cuts
http://www.ncpa.org/pub/ba633
The National Center for Policy Analysis explains why the United States must cut corporate tax rates in order to compete in the global economy.

U.S. Lags While Competitors Accelerate Corporate Income Tax Reform
http://www.heartland.org/policybot/results/25867/
This policy brief by the Tax Foundation outlines the global trend of other countries lowering and reforming their corporate tax rate structures while the United States is doing the reverse. It goes on to explain how this trend will hurt America's global competitiveness.

Cutting the Effective Corporate Tax Rate
http://www.cato.org/pubs/tbb/tbb_1008-50.pdf
Jack M. Mintz, chairman of the School of Policy Studies at the University of Calgary, finds that cutting the United States corporate tax rate by 10 percentage points could give a much-needed boost to the economy without losing much, if any, revenue in the long run.

How Do Taxes Affect Investment and Productivity?
http://www.olis.oecd.org/olis/2008doc.nsf/LinkTo/NT00007A42/$FILE/JT03257802.PDF
This working paper by the Economics Department of the Organisation for Economic Co-operation and Development (OECD) "finds evidence that corporate and top personal income taxes have a negative effect on productivity. In contrast, tax incentives for research and development (R&D) are found to have a positive effect on productivity."

Tax and Economic Growth
http://www.olis.oecd.org/olis/2008doc.nsf/LinkTo/NT00003502/$FILE/JT03248896.PDF
This working paper by the Economics Department of the OECD analyzes how to design a tax system to promote economic growth. In particular it notes, "Corporate taxes are found to be most harmful for growth."

Corporations Don't Pay Taxes--People Do!
http://www.atr.org/userfiles/050409pr-peoplenotcorps.pdf
This policy brief by Americans for Tax Reform debunks the misconception that corporations pay taxes. It goes on to explain who actually shoulders the burden of corporate taxes.

Obama to Increase Corporate Taxes, U.S. Job Losses Likely to Result
http://www.heartland.org/policybot/results/25415/
This article from Budget & Tax News looks at how President Barack Obama's plan to end or reduce corporate tax deferrals could affect U.S. businesses.

What Do Corporate Income Taxes Cost American Families?
http://www.heartland.org/policybot/results/23851/
This paper from the Tax Foundation analyzes the monetary burden the corporate tax puts on American families in the form of higher prices, lower wages, and lower returns on investments.

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For further information on the subject, visit the Budget & Tax Issue Suite on The Heartland Institute's Web site at www.heartland.org.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, contact Legislative Specialist John Nothdurft at 312/3774000 or jnothdurft@heartland.org.