Thursday, March 13, 2014

Corporate taxation is a horrible idea.

Many people think that taxing corporations is the most efficient way to raise revenue. I mean, who would be opposed to taxing corporations to raise revenue for social programs?

The answer: Most economists.

Empirical research continually finds that corporate taxes significantly reduce investment and that this reduced investment reduces worker productivity growth and subsequently keeps worker's wages lower than they would have been in absence of corporate taxation.

This is best illustrated by a study titled, 'Tax Policy For Economic Recovery and Growth', which examined the effects of taxes on 17 OECD countries and found that "Corporate taxes most harmful [to economic growth], followed by taxes on personal income, consumption, and property." [1]

Another study titled 'The dynamic effects of personal and corporate income tax changes in the United States' published in the American Economic Review found that " A 1 percentage point cut in the average corporate income tax rate raises real GDP per capita by 0.4 percent in the first quarter and by 0.6 percent after one year." [2]

And according to left leaning economist Laurence Kotlikoff, "Fully eliminating the corporate income tax and replacing any loss in revenues with somewhat higher personal income tax rates leads to a huge short-run inflow of capital, raising the United States’ capital stock (machines and buildings) by 23 percent, output by 8 percent and the real wages of unskilled and skilled workers by 12 percent." [3]

In short, corporate taxes are bad for workers, bad for investors, and bad for the economy. Even left leaning economists accept this basic fact of life and realize that there are far better ways to raise revenue to fund government functions.





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