The Case Against the Corporate Tax
As the new Congress gets set to liberate America from the stranglehold of the freshly defeated Red Congress, hopes for change are arising. One is the hope for a lowering of the US corporate tax rate.
This rate is a hefty 35%, second highest among the developed economies of the world. It seems obvious, just considering basic psychology, that lowering the corporate tax will be economically beneficial. It is a truism of behaviorist psychology that if you punish (negatively reinforce) a behavior you get less of it, and if you reward (positively reinforce) a behavior you get more of it. Corporate taxes punish business activity, resulting in less business — great if you are a leftist, but lousy if you are anyone else.
The Heritage Foundation has released the results of a study by economists Karen Campbell and John Ligon that spells out the case for lowering corporate taxes, called The Economic Impact of a 25 Percent Corporate Income Tax Rate. Campbell and Ligon ran a simulation of the economic impact of lowering the corporate tax from 35% to 25%. The results are eye-opening.
Their simulation (which covers the period 2011 to 2020) estimates that under the lower taxes, GDP would grow by an extra $132 billion annually, creating over 530,000 new private-sector jobs per year. The average family of four would see its after-tax yearly income go up by nearly $2,500. Gross private investment would rise by over $57 billion annually, and foreign assets in the US would rise by 4% annually. American capital stock would grow by $240 billion more a year, and real after-tax corporate profits would increase by an average of $124 billion a year over the current projected levels.
Notwithstanding all this, it is questionable whether Obama will ever allow a drop in corporate tax rates. He is instinctively anti-business, and although the economic case is compelling, he is the most economically ignorant president in recent history.