This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

9% Corporate Flat Tax Would Raise Wages, Boost GDP

By Hal M. Budrick

NEW YORK (MainStreet) Talk of a flat tax is back, but this time as a replacement to the current corporate income tax structure. Replacing the 35% corporate income tax with a flat tax rate of 9% is a strategy floated by the nonprofit Tax Analysis Center that promises to produce "rapid and dramatic increases in the level of U.S. investment," increase worker wages, boost GDP and maintain existing tax revenue.

"Most people think the corporate tax hits the rich, whereas most economists think it hits workers," says coauthor Laurence Kotlikoff, director of the Tax Analysis Center and professor of economics at Boston University. "The study confirms this. It shows that American workers are big winners under a 9% corporate flat tax. Lower corporate tax rates mean dramatically more corporate investment in the U.S. and that means significantly higher wages."

According to the center's model, a 9% corporate flat tax would:

Must Read: Marijuana Growth Fund Promises Seed Funding for Pot Industry

  • Immediately and permanently raise GDP by roughly 6%
  • Increase capital stock by 17% in the short run and by 30% by 2040
  • Increase wages about 6% in the short term, eventually increasing by 9%

Kotlikoff says the lower corporate tax rate could be achieved by eliminating loopholes in the current system, including accelerated depreciation, bonus depreciation and deferring foreign-earned income.

The study cites the effects of the so-called "Irish Miracle" of the late 1980s. In 1987, Ireland began cutting its 50% corporate tax rate, ultimately reaching a rate of just 12.5% in 2003. As a result, the country experienced a massive inflow of investment, luring over 1,000 multinationals including Motorola, Dell, Wyeth, Intel, Microsoft, IBM, Citigroup, and Bristol-Myers Squibb.

Between 1987 and 2007, Ireland's GDP growth rate averaged 6.4% per year, compared to a rate of 3.7% per year between 1971 and 1987.

"The current high corporate tax rate keeps capital outside the country," adds Kotlikoff. "With less capital, our output is lower and so are workers' wages. Our country has a historically low rate of net domestic investment. It's time to turn this situation around."

The Tax Analysis Center performed multi-model tax simulations comparing the economic impact of alternative revenue-neutral corporate tax reforms, featuring skilled and unskilled labor and the fiscal policies of five regions: the U.S., Europe, Japan, China and India.

--Written by Hal M. Bundrick for MainStreet

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.44 0.00%
FB $87.28 0.00%
GOOG $523.40 0.00%
TSLA $280.02 0.00%
YHOO $39.38 0.00%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs