Lowering The Corporate Tax Rate in the United States

Topics: United States, Corporate tax, Taxation Pages: 7 (1829 words) Published: September 19, 2014
Since the 2008 stock market collapse it has become more apparent that there is currently a deficit of jobs in the marketplace, and that so far initiatives by the federal government to help counteract that deficit have been largely ineffective. Thus, a better plan of action for restoring jobs is by encouraging employers to hire through the lowering of the corporate tax rate in the United States. Lowering the corporate tax rate in the United States will be exceptionally beneficial in the creation of new positions, as well as maintaining existing ones, for the majority of U.S. organizations thus improving the overall economic outlook for the country. Lowering the corporate tax rate would incentivize the creation of jobs in the United States instead of overseas, passes savings on to consumers through lower prices, and would also encourage increased investments into research and development in the country. The United States already stands a great disadvantage to the rest of the world due to its high corporate tax rate and without action being taken we stand to only continue down a path of decline in our job market. Research continually finds that lower corporate tax rates would equate to employers having more net revenue on hand to spend on hiring. A study on data collected between 1970 and 2007 from the United States found that for every $1.00 increase in state or local corporate tax revenues that hourly wages could be expected to fall by about $2.50 (Carroll, 2009). This then creates a further snowball effect on the economy. When wages are lower for workers the result is a decreased ability to buy goods, which then in turn leads to lower income for businesses and a net increase in unemployment (Ahlseen, 2012). In addition to this research there is also a concept that is known as the Laffer Curve. The Laffer Curve was developed by economist Arthur B. Laffer and states that the corporate tax rate can be seen on a curve. If the rate goes too low the government would receive insufficient funds to properly operate and provide basic structure to the country for businesses to operate. On the other hand if the corporate tax rate is too high then businesses are discouraged from operating even to the point of not operating at all. Laffer suggests that the approximate corporate tax rate that would maximize revenue for both the government and corporations is at least 5% lower than the current rate which has been substantiated by many of Dr. Laffer’s peers (Pacific Research Institute, 2013). Thus we can also see according to the Laffer Curve that currently companies in the United States are being taxed in a way that thereby inhibits their hiring, growth, and continued survival due to a lower net revenue being available for them to work with. In a capitalistic market such as the United States it only makes sense that when more revenue is left with a business that revenue is most likely to be heavily allocated towards growth so as to stay competitive. The growth of businesses can only occur when there is enough manpower and financial ability within the business to drive the growth. Additionally, the more the business grows, the higher the gross revenue, and the higher the dollar amount that will be paid out in taxes. By giving business both the incentive and financial means by which to continue promoting the growth of their organization the inherent result is a larger number of jobs and continued building of the United States economy. UC Berkeley Political Economy Professor David Romer was able to substantiate this thought pattern with research he conducted alongside the former head of President Obama’s Council of Economic Advisers, Christina Romer. Through their extensive research they were able to show that a tax cut resulting in the increase of corporate income to 1% of GDP in turn then increases GDP by between 2-3%. Additionally, a tax increase of 1% of GDP then lowers GDP by roughly 3%. With this information there...

References: Ahlseen, M. (2012). Why Government Can’t Create Jobs. Retrieved from: http://www.fee.org/the_freeman/detail/why-government-cant-create-jobs#axzz2kkFnDMNH
Bureau of Labor Statistics
Carroll, R. (2009). Corporate Taxes and Wages: Evidence from the 50 States. Retrieved from: http://taxfoundation.org/article/corporate-taxes-and-wages-evidence-50-states
Chasan, E
Pacific Research Institute. (2013). The Laffer Curve. Retrieved from: http://www.laffercenter.com/the-laffer-center-2/the-laffer-curve/
PricewaterhouseCoopers
Romer, D. & Romer, C. (2010). The Macroecomic Effects of Tax Changes: Estimates based on a New Measure of Fiscal Shocks. Retrieved from: http://www.aeaweb.org/
Tax Policy Center
Yerak, B. (2012). Aon Shareholders Approve Headquarters Move to London. Retrieved from: http://articles.chicagotribune.com/2012-03-17/business/ct-biz-0317-aon-board-20120317_1_aon-center-aon-corp-chief-executive-pat-ryan
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