Corporate Tax Reform Is the Key to Growth
It could increase the U.S. capital stock by $5 trillion and cause a $500 billion rise in annual income.
The debate over tax reform is focusing on all the wrong things: the personal rates and the deduction for state and local taxes. What will truly matter for the economy is corporate tax reform, which will lead to a major increase in capital spending by companies. That in turn will raise productivity and real wages.
These gains start small but will grow year after year as capital flows to corporate investment in the U.S. from the rest of the world and from other parts of the U.S. economy... Since GDP is projected to be $30 trillion in 2027, a $500 billion increase represents a gain of 1.7%, or just 0.17% per year over the decade... Cutting the corporate rate to 20% would raise retained earnings by about $2 trillion over 10 years... The lower tax rate will also induce foreign companies to shift some of their production to America. And capital within the U.S. will move from low-productivity uses in agriculture and housing to corporate investments.. It is troubling that America’s ratio of debt to GDP has more than doubled in the past 10 years and is projected to increase from 77% today to 91% in a decade.. An extra $1.5 trillion of debt will raise that ratio to 96%. But I believe the advantages of the corporate tax reform outweigh the adverse effects of the relatively small debt increase... The debt-to-GDP ratio, which was 35% as recently as 2007