The Agenda

The Virtues of Global Tax Competition

Alan Viard ends a short post on how the U.S. tax system impacts cross-border investment and job creation on an interesting note:

Although some view this trend toward lower corporate tax rates as a pernicious race to the bottom, it’s actually a race to the top–a global shift toward better tax systems. The corporate income tax is a flawed way to raise revenue, because it is complex and riddled with economic distortions, including arbitrary preferences for non-corporate over corporate firms and debt over equity. It would make more sense to tax income earned by American savers, no matter where in the world their savings are invested, than to tax corporations. And, it would make even more sense to replace the individual and corporate income taxes with a progressive consumption tax. Rather than viewing global corporate tax competition as a problem, let’s embrace it as an opportunity to reform our tax system.

I also appreciated a point he made earlier in the post:

In the long run, firms’ reduced demand for American workers shows up primarily as lower wages rather than fewer jobs. Statistical studies have confirmed that the corporate income tax depresses wages. While cutting corporate income taxes may not be a strong Keynesian tool to stimulate short-run job creation, it is a powerful way to promote long-run economic growth and permanently raise the living standards of American workers.

Given the rising concern over wage stagnation, this is salient.

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