more compeve, including reforming the internaonal tax system and creang a so-called

“innovaon box” to lower the tax rate on patents and intellectual property.

To be sure, moving to a territorial tax system would be an overdue improvement to America’s

tax system. But lawmakers should not lose sight of the need to lower the overall corporate

tax rate which, at 35 percent, is the highest in the industrialized world. America’s high

While the impact on the Federal Treasury is oen cited as the biggest obstacle to cung the

corporate tax rate, these costs are greatly diminished once the benets of economic growth

are factored into the equaon.

According to the Tax Foundaon’s Taxes and Growth (TAG) Model, the benets of a

compeve corporate tax rate to the American economy and its workers are substanal,

while the costs to the Treasury are at least 40 percent less than convenonal scoring

techniques would suggest. Indeed, on a simple cost-benet basis, it would appear that the

benets to workers and the economy greatly outweigh the cost to the Treasury.

We measured the eects of these lower rates, assuming no changes to the corporate tax

base, in order to isolate the full economic eects of a rate cut and to understand what

impact those economic changes would have on federal tax revenues. For the purposes of

this exercise, we did not aempt to esmate the eects of any reduced prot shiing or any

increased investment from abroad.

Table 1 compares the economic results of the three simulated corporate tax rate cuts. The

top-line results show that if U.S. lawmakers were to adopt the Canadian rate, it would

produce the biggest boost to long-term GDP, liing the level by 4.3 percent, nearly double

the eect of adopng the OECD average of 25 percent. If lawmakers were to take a more

modest approach and adopt the 20 percent UK rate, the model shows that the policy would

These lower capital costs signicantly increase the size of the capital stock in the economy.

The OECD average tax rate lis the capital stock by 6.7 percent over the long-term, while

the Brish rate boosts the level by nearly 10 percent. The Canadian rate delivers the biggest

bang on capital investment, liing the level of the capital stock by 12.6 percent.

Table 1 shows that if lawmakers were to cut the 35 percent U.S. corporate rate to the OECD

average, it would raise the overall wage rate by 1.9 percent over the long-term and create

425,000 full-me equivalent jobs. By contrast, adopng the UK rate of 20 percent would li

wages by 2.8 percent over the long-term and create more than 600,000 jobs.

Canadian rate of 15 percent. The TAG Model shows that a 15 percent corporate tax rate

would li the wage rate by 3.6 percent and generate 786,000 full-me equivalent jobs.

It is oen thought that cung corporate taxes only benets owners of capital. But the

model nds that increased investment and higher economic growth translate into higher

aer-tax incomes for households up and down the income scale.

Table 2 shows the distribuonal impact of the three dierent corporate tax rate cuts on

aer-tax incomes solely as a result of increased economic growth. In order to isolate these

eects, we have not distributed the dollar value of the corporate tax cut to shareholders

through higher dividends or capital gains.

We can see that the economic benets of the three corporate tax cuts are fairly uniform

across all the income groups, although the lowest-income taxpayers benet slightly more

than other income groups because the increase in their living standards tends not to push

According to convenonal esmates, which do not account for any macroeconomic eects

from policy, cung the corporate tax rate could mean a sizeable reducon in federal tax

revenues. As Table 3 illustrates, depending upon the extent of the rate cut, such a move

could reduce federal revenues by $1.2 trillion to $2.5 trillion over the course of ten years on

a convenonal basis.

By the end of the ten-year budget window, the convenonal esmate shows that cung

the U.S. corporate tax rate to match the OECD rate could cost the Treasury $140 billion

Canadian rate would cost twice as much as adopng the OECD rate, some $279 billion

annually.

Surely, these are the kind of gures that scare lawmakers away from a policy that would

improve U.S. compeveness and boost long-term economic growth. However, the results

Treasury from these corporate rate cuts is reduced by about 40 percent in each case.

Table 3 contrasts the convenonal revenue esmates of each rate cut with the esmates

that factor in these detailed macroeconomic eects. For example, the macroeconomic

esmate. The tenth-year cost drops to $56 billion, 73 percent less than the stac esmate.

Finally, cung the U.S. rate to 15 percent would cost the Treasury about $1 trillion less aer

accounng for the increased economic consequences of the policy than the convenonal

esmate would indicate. By the end of the ten-year budget window, the annual cost would

a “Laer” eect. In other words, it does not show that lower corporate tax rates result in an

overall increase in corporate tax revenues. Typically, we would expect that any sort of Laer

eect only arises from addional revenues generated by reduced prot-shiing or from an

inow of foreign direct investment caused by the lower corporate tax rate. We have not

tried to model these eects in this exercise.

industrialized countries. And, when the federal rate is combined with the average rate of the

states, the U.S. imposes third-highest overall corporate tax rate in the world. To the extent

that America is suering from an increase in base erosion, corporate inversions, or the ight

However, the Tax Foundaon’s TAG Model shows that if lawmakers were to lower the U.S.

corporate tax rate to either the OECD average of 25 percent, the UK rate of 20 percent, or

the Canadian federal rate of 15 percent, it would mean a big li to economic growth and the

living standards of American workers. These benets would come at substanally less cost to