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Let's Make the Corporate Tax Reduction a National Priority

Let's Make the Corporate Tax Reduction a National Priority

By    |   Friday, 10 November 2017 08:49 PM

The American Action Forum suggests that the distinguishing characteristic of the U.S. corporate tax is that its rate is the highest among OECD nations, which represent most of the world’s major economies. They put the combined federal-state U.S. corporate tax rate at 38.9 percent.

“The high U.S. rate is seemingly not a matter of deliberate choice. Instead, it stems from a failure to acknowledge and keep abreast of broader global trends. Over the last three decades, the U.S. corporate tax has remained largely unchanged, while other global economies have pursued dramatic rate-reducing tax reforms.”

As a result, the Trump administration’s plan to reduce the corporate tax rate to 20 percent “would return the U.S. to international tax norms, ridding it of the dubious distinction of having the highest statutory tax rate in the world. U.S. firms are increasingly at a disadvantage competing for the vast majority of world consumers and international markets as other nations adopt more favorable tax treatment of foreign-source income.”

Some economists estimate that reducing the federal corporate tax rate from 35 percent to even 25 percent would raise GDP by 2.2 percent, boost wages and hours of work by 1.9 percent and 0.3 percent, respectively, and increase total federal revenues by 0.8 percent.

What’s more, corporate taxes have a profound effect on wages and employment. A one percent increase in the marginal corporate tax rate would decrease wages by 0.7 percent. Another recent study concluded that labor bears 57 percent of the burden of the corporate income tax.

So the big question is: why are most Americans oblivious about the corporate tax rate discussion?

I think it’s because Republicans have done a poor job articulating the discussion, allowing Democrats to gain the spotlight by continuing to equate a corporate tax rate reduction with a gift to the wealthy.

The other big Democratic argument is that the U.S. can’t recover the revenue lost when the corporate tax rate is reduced. But the nonpartisan Tax Policy Center last year estimated that the corporate tax cut plan Mr. Trump had proposed might initially cost $2.4 trillion over a decade, but that deficit would be offset through economic growth, according to Steven Mnuchin, the secretary of the Treasury.

The Heritage Foundation proposes that of all the economic bang for the buck from all of the changes that were in the original Trump plan, you get the most economic juice from cutting the corporate rate.

An overlooked outcome of a reduced corporate tax rate according to Investopedia “is the relocation of U.S. corporations to foreign countries with more favorable tax laws. When these companies move their headquarters or create foreign subsidiaries, jobs and profits move overseas. The number of U.S. jobs at major multinational corporations shrunk during the last decade by 2.9 million, even more than the 2.4 million jobs these companies created abroad. In 2009, about one-third of all these companies’ workers were located abroad. And U.S. companies were holding $1.95 trillion in foreign countries in 2013, according to calculations by Bloomberg News. When you can choose where to do business, it makes sense to choose the lowest-cost option, and many corporations do.”

Perhaps the biggest winners of a corporate tax reduction are the nation’s entrepreneurs – our job creators. A study by the Office of Advocacy of the U.S. Small Business Administration suggests that tax rates directly impact entrepreneurship.

The SBA office writes that “Reducing marginal tax rates on entrepreneurial income provides a clear incentive for entrepreneurial activity. Policy makers who understand the importance of increasing entrepreneurship and economic growth should use this study to guide their policy decisions.”

The study concludes that a marginal tax rate reduction of one percent on entrepreneurial income increases the probability of the entrepreneurial entry by 1.42 percent for single filers and 2.0 percent for married filers. Also, extremely important is that lower tax rates greatly increase the probability of success of start-ups whereas conversely, high tax rates are an important factor leading to failure.

Imagine how our economy will soar when entrepreneurs are able to shed the shackles of high taxes that keep them from achieving the profits needed to grow and hire.

If there’s one thing that Americans should get behind in 2018 is urging their local and state representatives to vote for the corporate tax reduction. It will spur economic growth and create jobs.

Neal Asbury is chief executive of The Legacy Companies.

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Imagine how our economy will soar when entrepreneurs are able to shed the shackles of high taxes that keep them from achieving the profits needed to grow and hire.
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Friday, 10 November 2017 08:49 PM
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