Before the Tax Cuts and Jobs Act (TCJA), the U.S. had one of the highest statutory corporate income tax rates in the developed world at 35 percent.
Now, the federal corporate income tax rate sits at a much more competitive 21 percent, which brings the combined average state and federal tax rate (25.7 percent) closer to the average for developed countries (24 percent).
The new, permanently lowered corporate tax rate makes the United States a more attractive place for companies to locate investments and will discourage profit shifting to low-tax jurisdictions. The lower rate incentives new investments that will increase productivity, and lead to higher levels of output, employment, and income in the long run. By permanently lowering the corporate tax rate in the Tax Cuts and Jobs Act, lawmakers succeeded in making the United States a more globally competitive location for new investment, jobs, innovation, and growth.
Why should this matter to you?
Empirical evidence shows that the corporate income tax is the most harmful tax for economic growth and, despite what you may think, workers bear a sizable portion of its burden.
That’s because as the corporate income tax goes up, so does the cost of capital—things like machinery, equipment, and factories. The more expensive it is for businesses to invest in capital, the less productive workers are and, as a result, the demand for labor decreases.
The researchers at the TCJA estimate that tx cuts will boost wages by 1.4 percent and create 339,000 more full-time equivalent jobs. Overall, their model shows that recent reforms will grow the economy by about 1.7 percent in the long run.
LEARN MORE >> How Entrepreneurs And Low Taxes Create Economic Growth
The Tax Foundation is the nation’s leading independent tax policy nonprofit. Since 1937, our principled research, insightful analysis, and engaged experts have improved lives through smarter tax policy.
SOURCE: Tax Foundation
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