: What are the effects of lowering corporate taxes?
I had a debate with someone and argued that lower taxes lead to companies investing capital in new projects which require new labour, thus increasing jobs. These new employees, in turn, are the ones who pay extra taxes, so the government still receives roughly the same amount of taxes because of this trickle-down effect. Am I right?
Also, what are other effects of lowering taxes on corporations? Is it a good idea if the country is facing a deficit? For economic growth? Thank you
Answers and Views:
Answer by ibu guru
Low corporate tax rates, low regulatory burdens & expenses, ability to rapidly write off costs all not only keep existing businesses and encourage them to expand. These also help attract new businesses! Business goes where it is easiest and most profitable to do business. They go where they are wanted, not where they are taxed to death. They go where their markets are, or where they can get products to markets cheaply and easily. They go where they can get workers with the particular skills & attributes necessary for their company to be successful.
The US has the second-worst business climate in the world. High taxes, multiple layers of taxes (federal, state, local), wide variety of taxes (income, property, employment, unemployment, gas, business taxes & registrations, etc), extremely high costs of fulfilling all of the regulatory burdens, etc, have US companies fleeing out of the US. Ironically, for all US bluster about “tax havens,” the US is the world’s Number One tax haven – but ONLY for foreigners! There are severe disincentives to hiring, especially to hiring Americans. There are disincentives to invest: You not only have to pay for equipment, etc, but taxes on it, and many months of report preparation to get approvals, and numerous other hurdles, then deal with a capricious and anti-business, anti-jobs bureaucracy.
No wonder an American – typically a professional and/or small business owner – is permanently leaving the US ever 54 seconds. The expatriation rate is accelerating rapidly. It is not enough to reduce corporate income taxes at federal & state levels – although that is very necessary. It is critical to eliminate many other taxes, and especially the hidden costs of burdensome regulations.
Answer by SDDFirst of all you have to understand that corporations don’t pay taxes; they just collect them from customers, employees or shareholders.
when you decrease the tax on an activity, you will get more of that activity. In this case you would get more corporate activity in total. You would also be shifting corporate activity from other countries to the US (which currently has the highest corporate taxes in the world). every year Procter & Gamble has to decide whether to invest their profits in US divisions (high tax) or foreign divisions (low taxes). The tax rate influences that decision.
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