“The countries that lower their corporate tax rates lure capital, and that capital increases the number of jobs and bids up wages. And I’ve just finished a big cross-country study with my colleague at AEI, Aparna Mathur, and we found that there were very big statistically significant positive effects on wages of lower capital taxes and lower corporate taxes in particular. Multinationals are very good at locating activity at the most–in the most favorable climate. And they move their capital around to go find the low tax rate.
I mean, it’s really not a mystery. If you go around and ask CNBC viewers, you know, if your state had a much higher corporate tax rate than the states around you, do you think the corporations would put their factories in your state or in the states around you? And they say, `Oh, they’ll go to the states around us.’ Well, that’s exactly what’s happening right now.
We’re the country with the high rate and people are deciding to locate things abroad. You know, semiconductor foundries are not locating in the US. They’re locating abroad. And yet they’re really capital-intensive. It’s not the low cost labor that’s making firms do that. It’s the opportunity to get the taxes out of the US or get the corporate profits out of the US to a low tax environment.”
-Kevin Hassett, resident scholar and economic policy studies director at the American Enterprise Institute on CNBC’s Kudlow and Company
Bottom line – if you’re worried about wage inequality, U.S. competitiveness, or outsourcing, here’s the perfect solution: Slash corporate tax rates. In fact, we ought to go ahead and abolish the corporate tax altogether.