As the new Congress gets set to liberate America from the stranglehold of the freshly defeated Red Congress, hopes for change are arising. One is the hope for a lowering of the US corporate tax rate.
This rate is a hefty 35%, second highest among the developed economies of the world. It seems obvious, just considering basic psychology, that lowering the corporate tax will be economically beneficial. It is a truism of behaviorist psychology that if you punish (negatively reinforce) a behavior you get less of it, and if you reward (positively reinforce) a behavior you get more of it. Corporate taxes punish business activity, resulting in less business — great if you are a leftist, but lousy if you are anyone else.
The Heritage Foundation has released the results of a study by economists Karen Campbell and John Ligon that spells out the case for lowering corporate taxes, called The Economic Impact of a 25 Percent Corporate Income Tax Rate. Campbell and Ligon ran a simulation of the economic impact of lowering the corporate tax from 35% to 25%. The results are eye-opening.
Their simulation (which covers the period 2011 to 2020) estimates that under the lower taxes, GDP would grow by an extra $132 billion annually, creating over 530,000 new private-sector jobs per year. The average family of four would see its after-tax yearly income go up by nearly $2,500. Gross private investment would rise by over $57 billion annually, and foreign assets in the US would rise by 4% annually. American capital stock would grow by $240 billion more a year, and real after-tax corporate profits would increase by an average of $124 billion a year over the current projected levels.
Notwithstanding all this, it is questionable whether Obama will ever allow a drop in corporate tax rates. He is instinctively anti-business, and although the economic case is compelling, he is the most economically ignorant president in recent history.