The big-government advocates at the Center for American Progress recently released a series of charts designed to prove America is a low-tax nation. I wish this was the case.
The United States does have a lower overall tax burden than Europe, which is shown in one of the CAP charts, but that doesn’t exactly demonstrate that taxes are low in America. Unless, of course, you think weighing less than an offensive lineman in the NFL is proof of being skinny.
But the one chart that jumped out at me was the one showing that the United States collects less corporate tax revenue than other developed nations. The CAP document states, with obvious disapproval, that “Corporate income tax revenue in the United States is about 25 percent below the OECD average.”
The obvious implication, at least for the uninformed reader, is that the United States should increase the corporate tax burden.
But here’s some information that CAP didn’t bother to include in the study. The U.S. corporate tax rate is more than 39 percent and the average corporate tax rate in Europe is less than 25 percent.
So let’s ponder these interesting facts. CAP is right that the U.S. collects less tax revenue from corporations, but even they would be forced to admit (though they omit the info from their report) that the U.S. corporate tax rate is much higher. Let’s see…higher tax rate-lower revenue…lower tax rate-higher revenue…this seems vaguely familiar.
Could this possibly be an example of that “crazy” concept of (gasp!) a Laffer Curve? To be sure, it is only in rare cases, when tax rates get very high, that researchers find that high tax rates lose revenue. In most cases, the Laffer Curve simply implies that higher tax rates won’t raise as much money as politicians want.
But have our friends at CAP inadvertently identified one of those cases where a tax cut (i.e., a lower corporate tax rate) would “pay for itself”?
There certainly is strong evidence for this proposition. In a 2007 study, Alex Brill and Kevin Hassett of the American Enterprise Institute found that the revenue-maximizing corporate tax rate is about 25 percent.
Somehow, I suspect this wasn’t their intention, but I want to thank the statists at CAP for reminding us about the self-destructive impact of high tax rates. For those who want to learn more about the Laffer Curve, click this link.
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[…] The bottom line is that I think the revenue-maximizing point is probably closer to 30 percent, as shown in my chart. Especially in the long run. […]
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[…] get back to our main topic. I’ve written several times on whether our friends on the left are capable of learning about the Laffer Curve. Especially in cases when they imposed a tax in hopes of changing […]
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[…] to experts, the answer is yes. Scholars at the American Enterprise Institute estimate that the revenue-maximizing corporate tax rate for the United States is about 25 percent. And Tax […]
[…] to experts, the answer is yes. Scholars at the American Enterprise Institute estimate that the revenue-maximizing corporate tax rate for the United States is about 25 percent. And Tax […]
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[…] the evidence, they’ll see that there are big Laffer-Curve effects from better tax policy. A study from the American Enterprise Institute found that the revenue-maximizing corporate tax rate is about 25 percent while more recent research […]
[…] that it makes any difference. I’m slowly coming the conclusion that my friends on the left will never learn – in large part because they’re more interested in punishing success with class warfare tax […]
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[…] Or this research from the American Enterprise Institute about the Laffer Curve for the corporate income tax. […]
[…] ignore the Laffer Curve. Not that it makes any difference. I’m slowly coming the conclusion that my friends on the left will never learn – in large part because they’re more interested in punishing success with class warfare tax […]
[…] Or this research from the American Enterprise Institute about the Laffer Curve for the corporate income tax. […]
[…] that it makes any difference. I’m slowly coming the conclusion that my friends on the left will never learn – in large part because they’re more interested in punishing success with class warfare […]
[…] this research from the American Enterprise Institute about the Laffer Curve for the corporate income tax. Daniel J. Mitchell • August 2, […]
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[…] this research from the American Enterprise Institute about the Laffer Curve for the corporate income […]
[…] Or this research from the American Enterprise Institute about the Laffer Curve for the corporate income tax. […]
[…] Or this research from the American Enterprise Institute about the Laffer Curve for the corporate income tax. […]
[…] Or this research from the American Enterprise Institute about the Laffer Curve for the corporate income tax. […]
[…] answers. In part, this is because the answers vary depending on the type of tax, the country, and the time frame. In other words, there is more than one Laffer […]
[…] answers. In part, this is because the answers vary depending on the type of tax, the country, and the time frame. In other words, there is more than one Laffer […]
[…] this research from the American Enterprise Institute about the Laffer Curve for the corporate income […]
[…] answers. In part, this is because the answers vary depending on the type of tax, the country, and the time frame. In other words, there is more than one Laffer […]
[…] Daniel J. Mitchell, Cato: Over the past few years, I’ve shown lots of evidence from around the world (England, Spain, and France) and in various states to make the case that it is foolish to ignore the Laffer Curve. Not surprisingly, leftists never seem to learn. […]
[…] Over the past few years, I’ve shown lots of evidence from around the world (England, Spain, and France) and in various states (Illinois, Oregon, Florida, Maryland, and New York) to make the case that it is foolish to ignore the Laffer Curve. Not surprisingly, leftists never seem to learn. […]
[…] Over the past few years, I’ve shown lots of evidence from around the world (England, Spain, and France) and in various states (Illinois, Oregon, Florida, Maryland, and New York) to make the case that it is foolish to ignore the Laffer Curve. Not surprisingly, leftists never seem to learn. […]
The charts also show that “over the past 25 years, Congress has introduced billions of dollars worth of special breaks, subsidies, and loopholes into corporate and individual income tax codes. Their total value now exceeds $1trillion a year.”
Isn’t that the source of the gap, rather than the Laffer Curve?
Since the Center for American Progress is quoting statistics from the Organisation for Economic Co-operation and Development (OECD), one would necessarily need to consider the source when analyzing the data that they provide. A cursory examination of the OECD reveals that they are involved in not only economic, but environmental and social planning as well. Though the OECD does not have the ability to issue binding laws and regulations to member and non-member nations, they have the reach to strongly influence a members nations policy and law makers, which appears to be the primary goal. That the CAP would throw in with this control oriented, ‘world vision’ group is no surprise. From their own website, the CAP is advised to be working for “Progressive Ideas for a Strong, Just, and Free America” The word “PROGRESSIVE” should be noted, as it is not being used to describe a forward looking agenda, but is instead describing the POLITICAL MOVEMENT that is sweeping across this nation. To a Capitalist, anything that comes out of CAP should be rejected out-of-hand or at least, be regarded as suspicious. For the OECD, as it currently stands, to be cited as the shining star to guide the economic ship of commerce is just so much global nonsense. The OECD’s stated goals are of the economic and social development of it’s member countries. China and India are currently NOT members of the OECD. A passive reader has been advised that the economies of those two countries are doing rather well. The United States IS a member and we are doing just fine. . .Right? Also, the OECD might wish to claim one of it’s founding members (1961) as an example of it’s guidance and assistance. . .Greece! The CAP sure picked a winner to advise the standards that this nation should follow for our economic future.
Dan,
I don’t know this for a fact, but I think a better explanation is that a smaller proportion of US business income comes from corporations (specifically C corporations). My guess is that a larger share of business income in the US is taxed as flow-through income from entities such as sole proprietorships, partnerships, LLCs, and S-corporations. This income would be reported on individual income tax returns rather than corporate tax returns. I think that this would also explain why corporate tax revenue as a percentage of GDP has dropped. We are seeing a huge shift towards companies that are choosing the LLC form of entity.