Former President Trump is thinking about a plan to lower the corporate tax rate even more next year. This could help the economy grow, create jobs, and raise wages, but it would also make the government’s budget deficit even bigger than it already is.
That’s what the Tax Foundation said on Wednesday. They said that the change would make the U.S. corporate tax rate one of the lowest in the rich world.
According to economists Garret Watson and Erica York, a lower corporate income tax rate would make the US a more appealing place for businesses to invest. This would create jobs for American families and make companies less likely to move their operations or profits overseas.
They said that the move would cost up to $673 billion in revenue over ten years, at a time when “debt and deficits are already unsustainably high,” which could make it harder to make more pro-growth tax changes that could be part of talks about whether to extend Trump’s 2017 tax reform law.
The law passed in 2017 lowered the top corporate tax rate from 35% to 21% for good. It also temporarily lowered tax rates for individuals. After 2025, most Americans’ taxes will go up if lawmakers can’t agree on a way to keep these tax cuts in place.
The measure helped lower taxes for all American business owners, no matter how big or small. However, because they make so much money, it was especially good for the big multinational companies that make up the S&P 500 SPX.
Analyst John Butters at FactSet says that the average effective tax rate for S&P 500 companies dropped from 31.2% in 2017 to just 20% in 2018.
In an interview with Bloomberg Businessweek, President Trump said that he would like to further cut corporate rates as part of these talks, even though the U.S. government’s finances are bad.
In a meeting with the Business Roundtable, a lobbying group made up of the CEOs of America’s biggest companies, Trump talked about lowering the rate to 20%.
Trump told Bloomberg that he suggested a 20% rate because he likes “simplicity.” He also said that he likes “15% better,” but he admitted that getting that low would be “hard.”
“Fifteen would push us down to almost the bottom,” Trump said. “See, that tax cut I made made this place start to grow.”
The Tax Foundation, a group that supports lower taxes because they are good for the economy, said that lawmakers should think about other options that would also lower the effective rate that many corporations pay, but they would be more targeted and help the economy grow faster.
One of these rules lets companies immediately write off investments in things like capital equipment and research and development.
The study says that Trump’s plan will add about 93,000 full-time jobs, raise wages by 0.4%, and boost GDP by 0.4% over the long term.
Watson and York write that if policymakers decided to permanently deduct short-term assets and R&D costs, it would lead to more growth and less revenue loss than lowering the corporate tax rate.
They say that putting these rules into effect would cost no more than $561 billion, boost growth by 0.5%, and create 106,000 full-time jobs.
There is disagreement among economists about whether lower taxes on corporations are good for workers.
According to a study by the Tax Policy Center, the tax cut didn’t have much of an effect on business investment through 2019. They also said that employment and median wages actually went down in 2018 and 2019 compared to the two years before the law was passed.
