It’s Time to Cut Corporate Taxes

U.S. corporate taxes are way too high and they are inhibiting American competitiveness.

Loews CEO James Tisch (who also happens to be spearheading the tax reform group America Gains Coalition) has the story right. Namely, that the historically high corporate capital gains tax rate of 35 percent is stifling America’s economic growth.

It’s quite simple actually. Lowering corporate taxes would increase Treasury revenues, create jobs, and unlock dormant investment capital. It would make the U.S. more competitive, attract investment, and unleash growth throughout the economy.

It almost sounds too good to be true.

But the present reality is that corporations are sitting on literally trillions of dollars of gains locked up on their balance sheets. They’re sitting on this cash hoard because it doesn’t make sense to unlock them at the current 35 percent rate. It’s too high. Deals that look attractive on a pre-tax basis make little sense at all on an after-tax basis.

However, if Uncle Sam showed some economic spine and vision, it would recognize that it’s missing out on mountains of potential tax revenues with this onerous tax. The evidence speaks for itself--CEOs aren’t pulling the trigger on deals. But if the rate were lowered (or preferably abolished) from 35 percent to the 15 percent rate for individuals, corporations would be incentivized to unlock these gains.

Then, instead of getting 35 percent of nothing, the government would get 15 percent of something. Treasury would welcome a gusher of additional corporate tax revenues. After all, a little piece of a big pie is preferable to a big piece of a little pie.

Bear in mind that it’s the highest marginal tax rate that has the most inhibiting effect on economic growth. And right now the highest is the corporate rate which is running at around 40 percent (Fed plus state.) That’s the one to cut.

Incidentally, recent studies by Kevin Hassett and others show that not only would slashing the corporate rate result in making the U.S. more competitive, and attract more investment to our shores (as it has done with remarkable success in Ireland and Eastern Europe), but it would actually result in higher wages for American workers. This would help ameliorate the wage inequality problem because the tax savings would go roughly 70 percent to workers and 30 percent to shareholders.

What are we waiting for?