Treasury and Taxation: The Benefits of Corp Tax Cuts

The Tax Foundation offers up 10 reasons why the US should cut corporate taxes. 

With Big Oil sitting on the hot seat in front of a hostile congress this week, it’s hard to say how it will impact the corporate tax debate. Given the heated testimony, the prospects don’t look good. But if it is positive then a new report from the Tax Foundation touting the benefits of cutting corporate taxes, may fall on receptive ears.

“While many lawmakers are understandably concerned about the budgetary consequences of cutting the corporate tax rate,” wrote Tax Foundation president Scott Hodge in a report released Wednesday, “they should give greater weight to the benefits that such a move would mean to the American economy.”

Ten Benefits of Cutting the U.S. Corporate Tax Rate

1. Cutting the corporate tax rate will promote higher long-term economic growth. Mr. Hidge cited an Organization for Economic Cooperation and Development (OECD) report that measured the relationship between different types of taxes and economic growth. It showed that the most harmful tax for economic growth were corporate taxes.
2. Cutting the corporate tax rate will improve U.S. competitiveness. The overall US corporate tax at 39 percent is one of the highest in the world, putting US companies at a disadvantage to those with lower rates.
3. Cutting the corporate tax rate will lead to higher wages and living standards. Higher taxes hit consumers, workers via lower wages, and shareholders via lower returns.
4. Cutting the corporate tax rate will boost entrepreneurship, investment, and productivity. Another OECD study showed a “large and statistically significant,” impact on entrepreneurship.”
5. Cutting the corporate rate lowers the tax burden on low-income taxpayers and seniors. “Low-income taxpayers do pay corporate income taxes through higher prices, lower wages, or lower dividends in their retirement funds,” according to Mr. Hodge.
6. Cutting the corporate rate will lower the overall dividend tax rate and taxes on capital. According to the OECD the US has the fourth-highest overall tax rate on dividends among OECD nations at 49.5 percent.
7. Cutting the corporate tax rate can attract foreign direct investment (FDI). Numerous studies show increases in tax rates depresses FDI.
8. Cutting the corporate rate would lead to lower corporate debt and reduce the incentives for income shifting. Reducing taxes reduces companies’ incentive to possibly over-leverage.
9. Cutting the corporate tax rate can reduce compliance costs. Complying with US tax codes costs millions. One study puts the averages at about $1.3mn a year large firms.
10. Cutting the federal corporate rate can help the states compete globally. The high US rate saps states of resources as they work too hard to compete with each other.

Unfortunately, with the rancorous testimony between heads of the five largest oil companies and Democrats angry over what they feel are subsidies to companies with outsized profits, the ears don’t appear anywhere near receptive. For instance, during Thursday’s testimony, Sen. John D. Rockefeller IV, of Virginia told Chevron Corp CEO John Watson that he was “deeply and profoundly” out of touch with the American people after Mr. Watson suggested Americans want shared prosperity not shared sacrifice.