Corporate Income Tax Cuts Provide Long Term Economic Benefits, Study Finds

by Mike Godfrey, Tax-News.com, Washington

04 March 2005

A report by the Congressional Joint Committee on Taxation analyzing the economic effects of three separate tax cut proposals has concluded that reductions in corporate taxation will reap greater benefits for the economy than personal tax cuts over the long-term.

The study, released on Tuesday, explored the effects of a cut in corporate income and capital gains tax by 20%, and an increase in the amount of personal income which is exempt from tax by 65% to $5,200, indexed to inflation.

Other options examined in the report included the possibility of a 4% cut in individual tax through 2014, with a further 2.9% cut thereafter, to apply to each bracket for both ordinary income and capital gains and dividend income.

According to the report, reductions in the rate of corporate tax would have “the greatest effect on long-term growth” by increasing the stock of productive capital which eventually leads to higher labor productivity.

Whilst it was also found that personal tax cuts would be beneficial to the economy, the study concluded that the stimulus provided would be much more short-lived.

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