Will Corporate Tax Cuts Create Jobs?

I tend to agree with Marcus Ryu’s observation in his New York Times op-ed:

As an entrepreneur myself and a friend to many others, I know that lower tax rates will not motivate more people to start companies. People start companies for many reasons: a compelling idea, ambition for fame and fortune, a desire to be one’s own boss, frustration with one’s employer. I have never heard someone say, “I would have started a company, but tax rates were too high” or “I wouldn’t have started this company, but then George W. Bush cut tax rates, so I did.”

to the effect that cutting corporate income tax rates won’t increase the number of jobs. What he neglects to consider is that our present corporate tax code is already costing jobs and, worse, they’re the very sorts of jobs we need—managerial jobs, higher staff jobs—and replaced with nothing. “Inversions” to avoid the U. S.’s tax rates have taken place and continue to take place and when they do whole corporate headquarters move, too, taking their highly compensated jobs with them.

The corporate income tax is a very inefficient tax and the U. S. corporate tax code is out of line with those of other OECD countries. Reducing corporate tax rates wouldn’t be a master stroke that solves all of our economic problems but it would be a step in the right direction. If you’re concerned about its potential for worsening income inequality, increase the personal income tax rates.

4 comments… add one
  • Guarneri

    Mr Ryu’s sleight of hand is intellectually dishonest.

    I’ve never heard – “I would have started a company, but tax rates were too high” ”

    No shit. But that doesn’t mean after tax returns shouldn’t or don’t enter into the mix. Many, if not most, start ups fail because of the numerical naïveté of the founders. And even if they consider after tax returns it’s more intuitive than quantitative. And, as for institutions, they price quantitatively. Just imagine how your sales and profit projections would need to change if the tax rate increased from capital gains to OI. All you need is a pencil and yellow pad.

    For every wild eyed Apple founder there are thousands of would be entrepreneurs who can do simple math. In every day life people are price sensitive, from clipping food coupons to the price of a car to, well, Columbus Day sales. Yet when the subject turns political, and tax policy, we are asked to believe that notions of pricing vanish from the considerations. Fascinating.

  • steve

    For true start ups, not what Drew does, he is probably correct. You take everything your business makes as income. You aren’t paying corporate taxes. State taxes and local taxes are probably more of a problem.

    Will it make a big difference for existing corporations? Not sure. We have seen big profits for corporations over the last 7 years, and no corresponding increase in investment, so maybe cutting the corporate rate just means bigger salaries for management and returns to shareholders. Still, I would do away with the corporate tax since right now corporations spend so much time and money avoiding taxes that it just seems wasteful and it is a primary source of corruption.

    Steve

  • Ben Wolf

    Just eliminate the corporate tax entirely. It isn’t helping.

  • Andy

    I’d guess it would be a wash. Some jobs created in exchange for a decimation in corporate tax accounting.

    “I felt a great disturbance in the Force, as if millions of accountants suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened.” – Obi Tax Kenobi, VP for Corporate Accounting, Jedi Temple, Coruscant.

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