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Corporate Tax Cut as Growth Elixir? Foreign Experience Suggests Caution

May 23, 2017

President Trump seeks to lower corporate tax rates to 15% from its current rate of 35% in hopes of eventually pushing U.S. long-term growth rate up to 3% from 2%. In comparison to other countries, the United States has the highest coporate tax rate within the 35-nation Organization for Economic Cooperation and Development. Other countries on the list have lowered their rates drastically such as Britain who dropped from 30% to 19%. A joint study in 2004, which included Harvard university and four others, of eighty- five countries proposed that a 10% reduction in corporate tax rates effectively means a 2% increase in investment’s share of gross domestic product. Similar studies do not suggest an increase in national growth. However, the President’s tax cuts would also be paid for by an increase in government deficits which would expectantly raise interest rates, decreasing private investing and potentially off setting the benefits created from the tax cuts in the first place.

Corporate Tax Cut as Growth Elixir? Foreign Experience Suggests Caution