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Avoiding the Corporate Tax Reform Trap


“Policymakers must avoid the trap of promising a low corporate tax rate that’s so costly that corporate tax reform wouldn’t reduce the deficit — and might even add to it,” CBPP analysts Chye-Ching Huang and Chuck Marr write in an op-ed in The Guardian. Here’s the opening:

Corporate tax reform could help address two major public policy challenges: (1) unsustainable long-term budget deficits and (2) a tax code that lets corporations avoid taxes and encourages them to invest in ventures that receive the biggest tax breaks rather than those that can make the economy more productive. Reducing or eliminating the tax breaks that litter the corporate tax code could cut the deficit, reduce tax avoidance, and allow for more productive investments. But poor reforms could set the US back even further.

The tax code — including corporate taxes — should contribute to deficit reduction. Keep in mind that corporate tax revenues as a share of the economy are at historical lows, and they are low compared to other developed countries. Although the top corporate rate is high, the average tax rate — that is, the share of profits that companies actually pay — is substantially lower because corporations use the tax code’s many preferences to reduce their government bill.

As corporate lobbyists advocate for slashing corporate tax rates, policymakers should keep deficits firmly in sight. They should not promise a massive corporate tax cut before considering how unaffordable it may be.

Click here for the full op-ed.