Why we need a 15% tax rate for businesses to get us...

Why we need a 15% tax rate for businesses to get us back on our feet

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The Growing Need for Trump’s Proposed 15 percent Corporate Tax Rate

by Dan Mitchell

There are several features of President-Elect Trump’s tax plan that are worthy of praise, including death tax repealexpensing, and lower marginal tax rates on households.

But the policy that probably deserves the most attention is Trump’s embrace of a 15 percent tax rate for business.

What makes this policy so attractive – and vitally important – is that the rest of the world has been in a race to reduce corporate tax burdens.

Ironically, the U.S. helped start the race by cutting the corporate tax rate as part of the 1986 Tax Reform Act. But ever since then, policy in America has stagnated while other developed nations are engaged in a virtuous contest to become more competitive.

And that race continues every day.

Most impressively, as reported by the Financial Times, Hungary will cut its corporate tax rate from 19 percent to 9 percent.

Hungary’s government is to cut its corporate tax rate to the lowest level in the EU in a sign of increasingly competitive tax practices among countries seeking to lure foreign direct investment. Prime Minister Viktor Orban said a new 9 per cent corporate tax rate would be introduced in 2017, significantly lower than Ireland’s 12.5 per cent. …The government said the new single band would apply to all businesses. “Corporation tax will be lowered to single digits next year: a rate of 9 per cent will apply equally to small and medium-sized enterprises and large corporations,” a statement said. …Gabor Bekes, senior research fellow at Hungary’s Institute of Economics…said the measure would likely provoke complaints of unfair tax competition from western capitals.

Needless to say, complaints from Paris, Rome, and Berlin would be a sign that Hungary is doing the right thing.

Croatia also is moving policy in the right direction, albeit in a less aggressive fashion.

Corporate income tax will…be cut from 20 to 18 per cent for large companies and from 20 to 12 per cent for small and mid-level companies whose income is no higher than 400,000 euros annually.

Though the Croatian government also plans to lower tax rates on households.

Before the reform, people with salaries between 300 and 1,750 euros a month were taxed at 25 per cent, while now everyone earning up to 2,325 euros a month will be taxed at a 24 per cent rate. People earning more than 2,325 euros a month will have a 36 per cent tax rate, replacing a 40 per cent tax rate for anyone earning over 1,750 euros a month.

But let’s keep the focus on business taxation.

Our friends on the left don’t like Trump’s plan for a corporate tax cut, but here are there things they should know.

  1. A lower corporate tax rate won’t necessarily reduce corporate tax revenuetax-foundation-corporate-tax-revenue-maximizing-rateparticularly over time as there’s more investment and job creation.
  2. A lower corporate tax rate will dramatically – if not completely – eliminate any incentive for American companies to engage in inversions.
  3. A lower corporate tax rate will boost workers wages by increasing the nation’s capital stock and thus improving productivity.

If you want more information, here’s my primer on corporate taxation. You can also watch this video.

Or, to make matters simple, we can just copy Estonia, which has the world’s best systemaccording to the Tax Foundation.

  • Richard Hennessy

    We should eliminate income taxes entirely, both individual and corporate, and replace them with a sales tax, the “Fair Tax”. Business taxes are a lie by politicians to hide what are really taxes on the middle class. A business cannot pay any sort of tax. The sources of “business taxes” are lower wages for employees, lower returns on investments (your 401K), and higher prices for consumers, all hidden taxes on the middle class. Moreover, middle class families can less afford the cost of tax preparation software or hiring someone to prepare their income tax returns. There is no real reason why we should have to file an income tax return every year, when sufficient taxes may be more easily and efficiently collected by the Fair Tax, and get the IRS off our backs. The Fair Tax would also insure that the rich would have to pay their fair share, since there would no longer be any tax shelters. It’s way past time to get the IRS out of our lives.

  • M40

    Tax a company 40% of their profits, and… that’s 40% less people employed… 40% less new branches opening… 40% less new products being introduced to market… 40% less raises and benefits.
    …and liberals wonder why American jobs and companies are going overseas?