CORPORATE TAX RATES

We’re starting to see a new campaign by the Republicans about a cut in the corporate tax rates.

There is a good case to be made for corporate tax cuts. This is especially true if the objective is to increase business fixed investment. After all corporations account for over 80% of business fixed investment as compared to only about 11% by partnerships, S-corps, etc that are subject to the individual tax code. ( non-profits account for the remainder) If you want to stimulate capital spending you should give the money to the economic sector that actually does the investments. But this is also the problem with the standard supply side argument that cutting taxes at the individual level really does not give you much bang for the buck.

In todays world of international competition there is also the problem of international competition to consider. For example KPMG did a big study of this last year that is getting a lot of attention. That study had this chart that compared US corporate tax rates to comparable tax rates in other countries.

You can find the study at:

http://www.kpmg.com/NR/rdonlyres/D8CBA9FF-C953-45FA-940A-FAAC86729554/0/KPMGCorporateTaxRateSurvey.pdf

The study shows that other countries have been lowering rates while the US rate has remained at 40%. They argue that the US needs to lower corporate rates to offset other countries cutting taxes to below the US rate.

But the problem with this comparison is that the US corporate tax rate is not really 40%. The
effective US corporate tax rate is really only 25%.


The US has a long record of cutting the effective tax rate and it is now only half of what it was in 1950.

My question is why do they have to be so dishonest about it? There is a valid argument for lower corporate taxes. Why do they feel they have to publish studies that are so fundamentally biased that if people knew the facts it would undercut their argument. I guess they have such a low opinion of the business press and other newspaper reporters that they are confident that reporters will never fact check the study.

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