WASHINGTON (April 19, 2013) – As Congress weighs whether to embark on significant tax reform in this session, lawmakers should take a page from other developed countries and drop the prerequisite that cuts in corporate tax rates must be “revenue neutral,” R Street Research Director Ike Brannon argues in a new research brief.
Brannon notes that, in the past decade, every single other member of the Organisation for Economic Cooperation and Development has cut its corporate tax rate by at least one percentage point at least once, while the United States retains roughly the same 35 percent rate it adopted in the 1986 tax reform.
Moreover, of the 85 OECD corporate tax cuts enacted in OECD countries in the past decade, only 16 of them were accompanied either by an increase in the personal income tax or value-added tax, or by eliminating offsetting tax expenditures. In the U.S. context, the White House, House Ways and Means Committee Chairman Dave Camp, R-Mich., and Senate Finance Committee Chairman Max Baucus, D-Mont., have all signaled their intent to consider corporate tax reform only if the plan is revenue neutral.
“While the corporate tax code does indeed have a plethora of credits, deductions, and exclusions that allow corporations to reduce their tax bill, eliminating all of these and dedicating the revenue generated to ‘pay for’ a lower corporate tax rate does not buy that much of a tax rate reduction—perhaps less than the 25% rate promised by Chairman Camp,” Brannon wrote. “Corporate tax reform that is not constrained by revenue-neutrality could have significant long-term benefits to productivity, wages, and economic growth.”
The entire research brief can be downloaded from the R Street site here: