Why Corporations Should Pay Fewer Taxes

What’s the Latest Development?

The global nature of today’s capital markets puts the burden of high corporate tax rates on the worker, says UC Berkeley business professor Laura Tyson. The US should lower its corporate tax rates, which are currently among the highest in the world, to attract jobs back to the country. “A lower rate would strengthen incentives for investment and job creation in the US, and weaken incentives for tax avoidance. It would also reduce numerous efficiency-reducing distortions in the US tax code, including substantial tax advantages for debt financing over equity financing and for non-corporate businesses over corporate businesses.”

What’s the Big Idea?

Each percentage point-reduction in the corporate tax rate would see a loss of $12 billion in federal income. So to make up for that loss, Tyson proposes raising the capital gains tax. Taxing capital gains as ordinary income, subject to a 28% maximum rate for long-term income, would allow a reduction in corporate tax from 35% to 26%. “Such a change would reduce corporations’ incentives to move investments abroad or shift profits to low-tax jurisdictions, while increasing the progressivity of tax outcomes by shifting more of the burden of corporate taxation from labor to capital owners.”

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