President Donald Trump’s pro-business agenda, if successful, could lead the U.S. to an increase in jobs, wages, and GDP, says a new study from the Tax Foundation, a conservative think tank.
Under the president’s tax reform proposal, the corporate tax rate would come down to 20%. This would be in line with the likes of Iceland and Sweden, two jurisdictions that socialist Senator Bernie Sanders (I-VT) salivates over and wants the rest of the country to emulate.
According to the Tax Foundation, if the corporate tax rate reaches that level, then the U.S. economy could produce more than half-a-million jobs, a 2.5% bump in wages, and a 3% boost to the GDP. Should the president succeed, then he would surely be one step closer to Making America Great Again.
Study Supports 20% Corporate Tax Rate
Today, the U.S. maintains the highest corporate tax rate among Organisation for Economic Co-operation and Development (OECD) countries with 39.1%. This is one of the many reasons American businesses leave The Land of the Free and send their operations overseas.
To prevent the mass exodus from continuing, President Trump plans to reverse the trend by lowering the corporate tax rate by 19.1%. And many analysts agree that this would be a boon for the national economy and workers in every income bracket.
Last week, the Tax Foundation noted that every American would see their after-tax incomes receive a shot in the arm by an average of $1,800:
“The most important thing that Congress and the Trump administration can do to boost economic growth, lift workers’ wages, create jobs, and make the U.S. economy more competitive globally, is reform the business-half of our tax system. And one of the most critical elements of that reform is cutting the corporate tax rate.”
Analysts came to this conclusion by explaining how lower corporate tax rates decrease the cost of capital, a move that enhances capital investment.
This report comes after the Council of Economic Advisers (CEA) penned in a new paper that President Trump’s Unified Tax Plan could expand the GDP by as much as 5% and push individual incomes (salary and wages) by about $4,000 “10 years from now.”
Will the House Add a Phase-in?
The Dow Jones Industrial Averages tumbled nearly 100 points on Monday after Bloomberg reported that House Republicans are thinking about phasing in a corporate tax rate reduction in the Congressional tax reform initiative.
Reportedly, House tax writers are mulling over a gradual tax cut phase-in. This means that the corporate tax rate would be reduced to 20% by 2022, the middle of Trump’s second term, should he be re-elected.
Earlier this month, Reuters reported that many in Congress lobbied for the corporate tax rate to be lowered in different stages. If correct, the 20% goal would then occur in three to five years.
Kevin Brady (R-TX) hinted at the phase-in possibility in a recent interview with CNBC:
“There’s been a lot of discussion about how we get to these rates and do it in a good, fiscally responsible way. That has been floated. I want to see as much of the growth accelerated in this tax reform plan as possible. Mainly because I think our taxpayers deserve a stronger economy [than] what we have today. The sooner we become competitive the better. The rate plays a key role in it.”
Corporate Taxes Stifle Growth
Whether a corporate tax cut happens tomorrow or in 2022, they need to be slashed. Corporate taxes, like all other levies, only suffocate growth, hurt workers, and impact consumers. On an a priori and empirical level, a reduction in tax rates leads to economic growth.
First, corporate taxes hurt the profits of businesses; corporations don’t pay these levies, people do. Employees are not given a raise or are paid less, and future jobs are not created. Customers endure higher prices because the taxes are shifted to the consumer. Shareholders receive less in dividends for their monthly or quarterly payouts, hurting retirees and middle-class investors.
Second, higher corporate taxes drive corporations to other low-tax jurisdictions. Apple moved much of its operations to Ireland (12.5%), Halliburton relocated to Dubai (0%), Amazon set up shop in Luxembourg (23%), and Nabors Industries transferred facilities to Bermuda (0%).
For many businesses, the only setback in Trump’s plan is that he isn’t more aggressive. Why stop at 20% when there is empirical evidence that the lower the corporate tax rate, the better it is for the national economy?
Just imagine how wealthier the U.S. would be if a Republican or Democratic administration brought down the corporate tax rate to OECD averages years ago. Perhaps Trump wouldn’t have to Make America Great Again.
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