Uma proposta de Lawrence Kotlikoff, no Vox. It’s time to eliminate the US corporate income tax.
When it comes to corporate tax reform, the true incidence of who bears the tax is also lost in the words. Most people, regardless of political party, think the corporate income tax is primarily paid by rich corporate shareholders. But this is not necessarily the case (Felix and Hines 2009, Kotlikoff et al. 2013). In particular, a recent large-scaled dynamic simulation study, entitled “Simulating the Elimination of the US Corporate Income Tax,” (Kotlikoff et al. 2013) strongly suggests otherwise. As I discussed in a recent NY Times column (Kotlikoff 2014), corporate shareholders can, and do, move their capital and production away from countries that impose high corporate income tax rates to countries that impose low corporate income tax rates.
Our paper simulates corporate tax reform in the US and abroad, including the complete elimination of the US corporate income tax. The model features a single good produced in five regions – the US, Europe, Japan (plus Korea and Taiwan), China, and India – with skilled and unskilled labour. It also closely models demographics, including age-specific birth and death rates, as well as each countries’/regions’ fiscal policy.
We find that:
- Eliminating the US corporate income tax with no changes in the corporate tax rates of the other regions can produce rapid and dramatic increases in US domestic investment, output, real wages, and national saving.
- These economic improvements expand the economy’s tax base over time, producing additional revenues that make up for a significant share of the loss in receipts from the corporate tax.
The simulated economic gains from eliminating the corporate tax – while insufficient to fully finance the corporate tax cut (i.e., there is no Laffer Curve, per se) – are large enough to produce a Pareto improvement. Modest welfare gains accrue to early generations, both skilled and unskilled, and very sizable welfare gains go to young and future generations, both skilled and unskilled.
Importantly, these gains arise naturally with no special compensation mechanism required to transfer from winners to losers.