Lower Tax Rates Equal Growth, Jobs
– By Howard Sierer –
“The paradoxical truth is that taxes are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now.”
So said Pres. John Kennedy in 1962. What was true then was true in 2017 when the Republican Congress passed the Tax Cuts and Jobs Act, cutting both personal and corporate tax rates
I’ve described here and here how the TCJA benefitted all personal income tax payers regardless of their income level. Further, it increased the percentage of federal income taxes paid by “the rich,” in direct contradiction of Democratic claims at the time.
Now comes definitive proof that the act’s corporate tax cuts have in fact created a surge in business investment, making our economy grow faster than would have been the case. Economists from Harvard, Princeton and the University of Chicago wrote a new National Bureau of Economic Research paper documenting “the investment and firm valuation effects of the Tax Cuts and Jobs Act (TCJA) of 2017, the largest corporate tax reduction in the history of the United States.”
The authors found that businesses able to take advantage of the act’s provisions increased domestic investment by 20%. As a direct result of the TCJA, the domestic capital assets of U.S. firms increased 6% more than they would have without the act while their worldwide capital assets increased by 9%, both massive amounts given the size of our economy.
Tax Foundation economists William McBride and Alex Durante, who were not involved in the paper’s preparation, responded to it by describing how lower corporate taxes continue to generate voluminous receipts for the Treasury, even within the 10-year windows of Beltway budgeting.
The bottom line: TCJA corporate tax reform resulted in higher business investment, higher growth, and higher wages for workers, all with little impact on government revenue. Lower corporate tax rates were offset by an expanding economy and the personal income taxes paid on increased wages.
Jason Furman, Pres. Obama’s Chairman of the Council of Economic Advisors, said of the report, “These are the most convincing estimates of the response of investment to corporate tax rates that I’ve ever seen. Taxes actually do matter… Companies that saw larger reductions in tax rates from the TCJA also experienced larger increases in investment in the years that followed…”
Furman continues, “Note [the authors] find that they increase investment overseas and that this investment is a complement that leads them to increase investment in the United States.”
Taxes actually do matter. Preserving these moderate corporate tax rates will continue to foster Kennedy’s vision of a growing economy: “A rising tide lifts all boats.”
