Corporate tax rates and economic growth since 1. The never- ending fiscal and budget policy debates inside the Beltway have moved on to “tax reform.” Much of this tax reform concerns the corporate income tax, and the conventional wisdom in this debate is that the goal of reform should be revenue- neutral changes that broaden the base and lower the tax rate. Given widespread concerns about federal budget deficits, it seems odd to call for tax changes that lower rates. The putative impetus for these calls is the belief that the statutory corporate income tax rate is too high—placing an excessive burden on U. S. corporations that leads to poor economic performance. This brief examines corporate income- tax rates, and the argument linking low corporate tax rates with higher economic growth.

The principal findings are: Claims that the United States’ corporate tax rate is uniquely burdensome to U. S. business when compared with the corporate tax rates of its industrial peers are incorrect. While the United States has one of the highest statutory corporate income- tax rates among advanced countries, the effective corporate income- tax rate (2.

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GDP). The U. S. corporate income- tax rate is also not high by historic standards. The statutory corporate tax rate has gradually been reduced from over 5. The current U. S. Both before- tax and after- tax corporate profits as a percentage of national income are at post–World War II highs; they were 1. Lowering the corporate income- tax rate would not spur economic growth. The analysis finds no evidence that high corporate tax rates have a negative impact on economic growth (i. Watch Bounty Killer Tube Free. Why we need a corporate income tax.

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Corporate tax reform has been discussed with varying degrees of intensity since the advent of the corporate income tax in 1. Over the past few years, there has been heated debate over the statutory corporate income- tax rate, which has stood at 3. Many people point out that the statutory corporate tax rate is one of the highest in the industrialized world. Some, such as President Obama, advocate revenue- neutral corporate tax reform with a reduction in the statutory corporate tax rate and elimination or modification of corporate tax expenditures. Others argue for simple rate reduction (and corporate tax revenue reduction) or even outright elimination of the corporate income tax. While the U. S. statutory corporate income- tax rate is generally higher than the tax rate in other advanced countries (those in the Organization for Economic Cooperation and Development), the effective tax rate is about the same as in other OECD countries (Gravelle 2.

For example, Pricewaterhouse. Coopers (2. 01. 1) estimated that the U. S. effective corporate tax rate, averaged over 2. OECD countries was 2. This OECD average, however, gives equal weight to the tax rates of all countries, large and small.

If the tax rates are weighted by GDP, the average effective tax rate was 2. Watch End Of Days Download Full. The corporate income tax serves three important functions. First, it raises a significant amount of revenue for the federal government—$2. However, the corporate income tax is less important now than in the 1.

Second, the corporate income tax contributes to the overall progressivity of the tax system to the extent that the corporate tax burden falls on capital. While some recent research has estimated that most or all (in some cases over 1. Hassett and Mathur 2. Gravelle and Hungerford 2. Clausing 2. 01. 1–2. Clausing 2. 01. 3). Many tax policy analysts and government agencies distribute the majority of corporate tax burden to capital (between 7.

Consequently, it is safe to say that the corporate income tax contributes to the progressivity of the overall tax system. Third, the corporate income tax serves as a backstop to the individual income tax because it precludes using the corporation as a tax shelter for high- income taxpayers. Gravelle and Hungerford (2. Corporate profitability. Corporate profitability is at an all- time high. Before- tax corporate profits (excluding the profits of the Federal Reserve banks) have averaged 1.

World War II (see Figure A). The trend in before- tax profits basically displays a U- shaped pattern over this 6. In 2. 01. 2, before- tax profits were equal to 1. Even in the depths of the Great Recession, corporate profits (9.

The trend in after- tax corporate profits as a percentage of national income is also shown in Figure A. Between 1. 94. 7 and 2. In 2. 01. 2, after- tax profits were equal to 1.

Overall, the trend displays a U- shape that is much shallower than that of before- tax profits. But more importantly, after- tax profits since 2. The gap between before- tax and after- tax corporate profits (as a percentage of national income) was 4 to 5 percentage points throughout the 1. The gap has narrowed considerably since the early 1.

Figure ACorporate profits as a percentage of national income, 1. Year. Before- tax.

After- tax. 19. 47. Chart. Data Download data. The data below can be saved or copied directly into Excel.

The data underlying the figure. Source: Author's analysis of Bureau of Economic Analysis National Income and Product Accounts data. Corporate tax rates and economic growth. At first glance, a link between the statutory corporate tax rate and economic growth appears to go in the “wrong” direction—higher tax rates are consistent with higher economic growth rates! The economy grew at an annual average rate of 3. Between 2. 00. 0 and 2. The trend in real GDP growth is displayed in Figure B (dotted line).

With its ups and downs since 1. GDP growth basically fluctuated around a downward trend. The statutory corporate tax rate is also displayed in Figure B (in dark blue). The tax rate leveled at about 5. Again, this suggests a positive association between GDP growth and corporate tax rates. Figure BEconomic growth and corporate tax rates, 1. Year. Real GDP growth.

Effective rate on capital income. Statutory rate. 19. Chart. Data Download data. The data below can be saved or copied directly into Excel. Watch Freejack Online Full Movie. The data underlying the figure.

Source: Author's analysis of Bureau of Economic Analysis National Income and Product Accounts data (Table 1. Internal Revenue Service Statistics of Income Historical Table 2. Gravelle (2. 00. 6)The statutory corporate tax rate, however, does not necessarily capture the tax burden on new investment (Gravelle 1.

The effective marginal tax rate on earnings from investment could be a better measure of the tax burden. The trend in the effective marginal tax rate on capital income between 1. Figure B (in solid light blue).

Except for a rather large dip followed by a large increase over the 1. It is possible that the corporate tax rate affects economic growth with a lag. Consequently, real GDP growth is compared with the tax rates from the previous year. Figure C shows the scatter plot of real GDP growth and the 1- year lag of the statutory corporate tax rate between 1.

The straight line is the trend line defined by the scatter plot. The slope of the trend line is upward, and the estimated correlation between the two series is +0. This estimated correlation, however, is not statistically significant. In other words, there is no apparent association between the statutory corporate tax rate and economic growth. Figure CRelationship between statutory corporate tax rate and economic growth, 1. Real GDP growth. Statutory corporate tax rate (1- year lag)Trend line- 3. Chart. Data Download data.

The data below can be saved or copied directly into Excel. The data underlying the figure.