Corporate Tax Cuts and Tax Revenues

The Republicantax reform framework envisions cutting the federal corporate tax rate from 35 to 20 percent. There may be pressure in coming weeks to scale-back some of the framework ’s pro-growth provisions in order to hit revenue targets, but policymakers should stick with their corporate rate target.Various groups have modeled the revenue effects of proposed corporate rate cuts, but they generally do not account for the full dynamic effects of reform. We can get an idea of the full effects by looking at actual reforms abroad.Sharp corporate tax rate cuts inCanada andBritain do not seem to have lost those governments much, if any, revenue. That is likely because companies responded with a wide range of real and paper changes that increased their reported income. The same would happen in the United States, which is why dropping our rate to 20 percent would probably not lose revenue over the long term.   Here is some evidence. For 19 OECD countries with good rate and revenue data back to the 1960s, I calculated the average corporate tax rates and average corporate tax revenues as a share of GDP. The chart illustrates the Laffer Curve effect of chopping high tax rates on a mobile tax base —rates go down, the tax base expands, and revenues remain strong.From 1985 to 2005, corporate tax revenues as a share of GDP soared even though the average tax rate across the 19 countries fell from 45 to 29 percent. Then there is a sharp drop in revenues in 2010, presumably because of th...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs