This article discusses President Obama's proposed corporate tax reform. The corporate tax rate in the United States, including state and local taxes, is currently 39.2%; this is high above the OECD weighted average, which is just under 30%. This high tax on corporations has encouraged more firms to produce abroad, causing domestic employment to decline. Obama plans to lower the tax rate to 32.6% and provide tax credits which incentivize domestic investment. This is expected to cost about $950 billion altogether, which Obama claims he will pay for by eliminating other tax breaks to make up for the new ones. He has, however, been somewhat vague about what which tax breaks to eliminate, which is always a difficult decision to make. There have also been arguments that large corporations who invest heavily abroad, such as Apple, will be hurt by these tax breaks and lobby to resist them.
http://www.economist.com/node/21548245
http://www.economist.com/node/21548245
2 comments:
This article is interesting and helped me understand more the debate about corporate tax rates. It is very interesting that the US is above the OECD average. I think the most important thing in establishing the tax break is to somehow make up for all the money that will be lost. A lot of tax money would be lost by such a large tax cut, so it is important to know how that will be accounted for.
A tax cut targeted to companies should be better to the economy (in theory) compared to a tax cut focused on consumers (as what the Obama Administration did in the past). Lowering corporation tax would give corporations motivation to expand, invest more, and increase output. Therefore, a tax cut targeted to companies will not only increase the demand side of the economy (as the tax cut focusing on consumers), but also increase aggregate supply. Tax refunds to companies will be a expansionary but not that inflationary fiscal policy.
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