Stimulating the Economy by Repealing the Corporate Income Tax

Writing in National Review, Harvard economist (and Reason contributor) Jeffrey Miron makes the case for repealing the corporate income tax:

Rather than attempt to target jobs in the short run, the administration should advance policies that make sense independent of the recession and that enhance economic efficiency over the long haul. One such policy is to repeal the corporate-income tax, which will stimulate employment far better than a jobs tax credit.

If corporations face zero taxation on their profits, they will expand investment and employment for two reasons. First, the increased cash flow will allow corporations to invest without borrowing from banks. These new investments will generate employment both to build new plants and equipment and to staff the new factories. This is the standard Keynesian argument for business-tax cuts, and it can operate almost instantly. Second, repeal of the corporate-income tax means a higher return to investment, which encourages capital accumulation in the long run.

Read the rest here.