A new report from the Economic Policy Institute (EPI) shatters several bits of conventional wisdom embraced by the media and many in Washington, D.C., including the oft-repeated Republican mantra that lower corporate taxes boost the economy. The analysis found no evidence that changes in the statutory or effective tax rate on corporations are correlated with economic growth.
The report also finds that:
- The corporate tax rate in the United States is not high compared to other countries. While it is true that the United States has the highest tax rate on paper, because of loopholes in the system, including offshoring, few companies pay that rate. The effective corporate tax rate of 27.7% is close to the average of the wealthy countries that are comparable to the United States, with those countries averaging 27.2%.
- The current tax rate in the United States is not high compared to historical levels. The current statutory rate of 35% is lower than the rate of over 50% that was statutory in the 1950s.
- The current rate, either statutory or effective, is not impeding corporate profits. Both before-tax and after-tax corporate profits are at post-World War II highs as a percentage of national income.
The report’s author, Thomas L. Hungerford, argues that the current focus in policy and media circles makes little sense:
Given widespread concerns about federal budget deficits, it seems odd to call for tax changes that lower rates. The putative impetus for these calls is the belief that the statutory corporate income tax rate is too high—placing an excessive burden on U.S. corporations that leads to poor economic performance.
Read the full report.