terrific op-ed today in the New York Times cogently arguing that abolishing the corporate income tax is the equivalent of unleashing a jobs creation machine. Kotlikoff accurately notes that capital goes to where it's wanted and low taxes are a great signal that it's welcome. Kotlikoff and his colleagues have developed a econometric model to see what effect various corporate tax rates have on job creation and wages. Kotlikoff reports:Boston University economist Laurence Kotlikoff has a
In the model, eliminating the United States’ corporate income tax produces rapid and dramatic increases in American investment, output and real wages, making the tax cut self-financing to a significant extent. Somewhat smaller gains arise from revenue-neutral corporate tax base broadening, specifically cutting the corporate tax rate to 9 percent and eliminating all corporate tax loopholes. Both policies generate welfare gains for all generations in the United States, but particularly for young and future workers. Moreover, all Americans can benefit, though by less, if foreign countries also cut their corporate tax rates.
The size of the potential economic and welfare gains are stunningly large and don’t reflect any extreme supply-side (a k a, voodoo economics) assumptions. Fully eliminating the corporate income tax and replacing any loss in revenues with somewhat higher personal income tax rates leads to a huge short-run inflow of capital, raising the United States’ capital stock (machines and buildings) by 23 percent, output by 8 percent and the real wages of unskilled and skilled workers by 12 percent. Lowering the corporate rate tax to 9 percent while also closing loopholes is roughly revenue neutral and also produces very rapid increases in capital (by 17 percent), output (by 6 percent) and real wages (by 8 percent).
Before the 2012 election, even President Obama said that he wanted to cut corporate income taxes from 35 percent to 28 percent.