High Corporate Taxes Burdening Businesses

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Reducing the Rate Would Bring Huge Infusion of Capital to U.S.: New NCPA Report

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The United States operates in a way that is particularly punishing to corporate investment. As a result, savers in the United States just move their capital abroad in response to higher U.S. taxes on capital.

Reducing the U.S. corporate income tax would draw financial capital into the United States, while increasing wages and production, according to a new report by Beacon Hill Executive Director and National Center for Policy Analysis Senior Fellow David Tuerck and Beacon Hill Institute’s James Angelini.

“The United States operates in a way that is particularly punishing to corporate investment,” says Tuerck. “As a result, savers in the United States just move their capital abroad in response to higher U.S. taxes on capital. Under the assumption of a closed economy, taxes on capital will be borne by the owners of capital, but in an open economy, where capital can move freely, the burden falls on labor, lowering average wage rates.”

Consider the effective marginal tax rate on capital (EMTR) – the tax liability from a one dollar change in taxable and nontaxable income.

-- An earlier estimate by economist Jack Mintz found that among G-7 countries, the United States had the lowest effective marginal tax rate in 1994, at 25.4 percent.
-- By 2013, the U.S. effective marginal tax rate was the highest at 35.3 percent.
-- According to Tuerck's and Angelini's estimates, under current tax law, the average effective marginal tax rate on capital is even higher at 48 percent.
-- In specific industries, the effective marginal tax rate on capital exceeds 56 percent.

Based on their analysis, Tuerck and Angelini conclude that the current corporate tax rate raises the cost of capital, diminishes investment, and reduces economic outputs and living standards – all while failing to bring in a significant source of revenue for the U.S. government.

The Economic Burden of Corporate Taxation: http://www.ncpa.org/pub/the-economic-burden-of-corporate-taxation

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, education, energy and the environment. Visit our website today for more information.

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Catherine Daniell
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