There is bipartisan agreement that the current corporate income tax regime needs to be changed, but substantial debate exists over what the optimal corporate tax policy would look like. Last October, House Ways and Means chairman Charles Rangel (D-N.Y.) proposed a 4.5 percentage point decrease in the corporate income tax in tandem with substantial base-broadening provisions. Republican presidential candidate John McCain has recently called for a 10 percentage point cut in the corporate tax rate in order to improve America’s international competitiveness. Both Democratic candidates have pledged to reform the corporate income tax by closing loopholes. This AEI event will put the current debate over corporate taxation into an economic context.
A number of recent papers have influenced the public debate over the corporate tax by providing evidence that high corporate tax rates create a business environment that is harmful to labor and revenue. A recent Congressional Research Service report written by economists Jane G. Gravelle and Thomas L. Hungerford challenged many of the key findings in this area, including the conclusions of two recent AEI studies. The first study, Kevin A. Hassett and Aparna Mathur’s “Taxes and Wages,” analyzes the sensitivity of manufacturing wages to corporate income tax rates. Hassett and Mathur find that a 1 percent increase in the corporate income tax rates leads to an almost 1 percent drop in manufacturing wages. The second study, “Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries” by Hassett and Alex Brill, examines international corporate tax rates and revenues and finds evidence of the existence of an international corporate income tax Laffer Curve, where high corporate income tax countries actually collect less tax revenue than countries with lower rates. At this conference, Gravelle and Hungerford will present the key findings of their study. Hassett, a senior fellow and director of economic policy studies at AEI, will respond. Leonard E. Burman, director of the Urban-Brookings Tax Policy Center, will moderate.