Tax Reform ~ Lowering the Corporate Income Tax

With United States tax code that consists of over 60,000 pages of complex law, simplifying the tax code or even abolishing it is something that has been on many economists minds lately. In fact, even former presidential candidate Herman Cain proposed similar action through his 9-9-9 plan. However, this scares many people, believing that taking such a massive change in the U.S. tax system could decrease revenue so much our government wouldn’t be able to function. So, instead they have proposed simple tax cuts as a plan of action. Let’s examine one of those tax cut proposals.

One popular proposal among economists and businesses is lowering the corporate income tax. For many years higher wage prices and higher taxes have driven U.S. businesses away to other countries, mainly China. So, why not just lower the tax to bring them back? Well, studies have been done on the effects of such actions. Economists say that through repatriating businesses back to the U.S. we will increase our GDP by up to $336 billion, increase employment in America by up to 2.5 million jobs, and actually increase revenue entering the federal government by $36 billion dollars by simply lowering to a rate of at least 25%, to be competitive again with China.

Where are all of these predicted effects coming from? The answer is pretty simple actually. When the businesses went overseas they did two things. First, they took some money with them, secondly, they made money while they were over there. Currently there is an estimated $1.2 trillion in overseas banks made by U.S. businesses. Brining back this money along with the businesses we have lost would be a massive boost to our economy. However, one thing remains the same, China and other foreign countries still have lower wage prices. This means that all of the manufacturing jobs won’t necessarily come back.

So, what will lowering the corporate income tax do to help us or will it do anything at all. Well, I must certainly say it will help us, not in a massive way that complete tax reform will, but it will have some effect. As studies have shown we will increase jobs, but we will not increase manufacturing jobs because China is a better place for manufacturing. So what jobs are we creating? Well, statistics have shown that China is running low on high-skilled jobs. What is one thing we have too much of in the U.S. and not enough positions to fill? It’s high-skilled jobs. With all of the millions of college students graduating each year we have more and more people to fill non-existent jobs. Being that we would provide more an opportunity for businesses to save money in the U.S. through lowering taxes we will be able to create more high-skill opportunities for individuals in the U.S. This comes with one drawback. Manufacturing creates more jobs than high-skilled jobs right? Well, not necessarily. Immediately we won’t have much of a job increase and our economy would still continue to decline, but things like this take time. A study done in Florida showed that by creating only 100 high-skilled jobs they actually created 250 more lower skilled income jobs. Why? Well, high-skilled jobs make new inventions, these are smart people. To make those new inventions come true, you have to build them. That’s where the manufacturing comes into play. So, in the end, it would take time for our economy to get back underway by just lowering the corporate income tax, but in the long run it would benefit the economy greatly.