Want Jobs? Cut Corporate Taxes!

The American economy, which trickles down through the world economy, is growing anemically at best.  Politicians seem more intent on scoring points than actually working towards an improvement that could easily be achieved.  People need jobs and the fastest way to bring them about is to cut the Corporate Tax Rate. That is all of the opinion that is blatantly offered in this article because the rest speaks for itself.  Facts are facts, and the fact is corporate taxes are holding our economy back from creating jobs.

Often times, tax discussions become very complex and most well-informed participants will rightly point out that growth and shrinking economies have many other causes.  To look at the effects, one must account for such other factors and their impacts.  Numerous studies have been done that look at the issue of Corporate Taxes and their effect on the economy.

Progressives argue that high tax rates of the 1950's stimulated the economy during the 1950's.  They often cite the CRS report which looked at this time period in specificity.  There is a major issue which is well addressed by William McBride in the following excerpt:

For instance, the Congressional Research Service (CRS) has found support for the theory that taxes have no effect on economic growth by looking at the U.S. experience since World War II and the dramatic variation in the statutory top marginal rate on individual income.[1] They find the fastest economic growth occurred in the 1950s when the top rate was more than ninety percent.[2] However, their study ignores the most basic problems with this sort of statistical analysis, including: the variation in the tax base to which the individual income tax applies; the variation in other taxes, particularly the corporate tax; the short-term versus long-term effects of tax policy; and reverse causality, whereby economic growth affects tax rates. These problems are all well-known in the academic literature and have been dealt with in various ways, making the CRS study unpublishable in any peer-reviewed academic journal.[3] (What Is the Evidence on Taxes and Growth?)

When accounting for other causes in the economy, what effects does a change in the corporate tax rate do to GDP?  GDP is the economic output of our country and thus, a good measure of business growth.  But, you don't have to take my word on GDP, here is the definition and explanation.

When taking into account, the other variables that change GDP, research has found the same conclusion time and time again.  An increase in the corporate tax rate has a negative effect on GDP.  A decrease in corporate tax rates has a positive effect on GDP.  For a list of the peer-reviewed studies and their findings, please follow this link to Table 1.  The actual effects of corporate tax increases to GDP decreases is approximately a 1% to 1% relationship.  For our economy, a 1% decrease is an enormous drop in GDP.

In addition, throughout these studies, one will find that there is an effect on individuals as well:

1. A reduction in corporate taxes can increase revenue to the government.  Why do we care?  It is assumed that a tax cut equals higher taxes for others.  In the case of corporate taxes, this is not the case.  The reduction causes so much growth that the growth covers the loss in tax revenue and then some.  Meaning, individuals will not be burdened with additional taxes.
2. Costs of goods and services are shown to drop for individuals when corporate taxes are decreased.
3. Jobs, jobs, jobs....an increase in jobs for others, lessons the burden carried by our current tax payers.  The more people are employed, the lesser amount each working individual needs to be taxed.
4. Aforementioned above, but equally important are tax rates.  All of these studies allude to the fact that individual tax rates have the same effect on the economy.  It should also be noted that decreasing corporate tax rates allows for the cutting of individual tax rates with similar effects.

What can we conclude from the look at the corporate tax rates?  They are one major solution to our current economic failures.  According to these studies, if we cut the corporate tax rate by 10%, we should see a 10% increase in GDP within the year and even more after that.

But wait, no one has to take my word for it, the empirical evidence is enormous.  A recent analysis looked at cutting corporate taxes by 10%.  Here is a summary of the findings:

The CDA analysis of a reduction in the corporate income tax rate to 25 percent shows impressive growth for the U.S. economy.[3] For example:

• The number of jobs in the U.S. would grow on average by 581,000 annually from 2011 to 2020, with 531,000 on average being created in the private sector each year;

• U.S. real gross domestic product would rise on average by $132 billion per year;

• A typical family of four’s after-tax income would rise on average by $2,484 per year;

• U.S. capital stock would grow by an average of $240 billion more per year; and

• Gross private domestic investment would increase by $57.2 billion per year.[4]

When looking at solutions for our ailing economy, keep in mind the above information.  There is no reason that we tax corporations at the highest rates in the world.  These taxes are hurting the people they are supposedly trying to protect, the American worker.  It is time to cut corporate taxes and start creating jobs once again, at a faster clip than now.