Question

What are the potential tradeoffs in the cutting of the federal corporate tax? Discussion.

Answer 1

ANSWER: A central argument proponent of federal corporate tax cuts make is that the United States Corporation’s pays higher tax rates in comparison to the peer countries; and the differential effects U.S. “competitiveness” and discourages companies from investing in the U.S. Thus claim to reduce the deferal corporate tax rates to improve the competitiveness of the U.S. companies. However in reality there is no guarantee that lower tax rates will encourage firms to invest. Investment depends primarily on expectations of growth in future which further depends on economic climate and also on any potential response from other countries. Reducing the corporate tax rate alone won't necessarily make any difference because there is numerous other considerations that shape where companies choose where to locate - an educated workforce, access to capital among them, and a robust regulatory regime. For staying revenue neutral when growth effects are ignored, a cut in the corporate tax rate would be required to be accompanied by tax hike elsewhere or by cuts in federal spending. Cutting the corporate tax rate increases the deficit, which hurts job creation and wages