Forbes on Fox Topic: Cutting Corporate Tax Rates to Boost the Economy

Forbes on Fox Topic: Cutting Corporate Tax Rates to Boost the Economy

January 1, 2006

Another topic on we discussed on Forbes on Fox Saturday (12/31/05): The U.S. has the highest corporate tax rate of industrialized nations. Do we need to cut corporate taxes now to attract more investments and help boost the economy, job market and stock market?

My answer? Absolutely! Cutting corporate tax rates (not corporate taxes) is important for the economy, especially for the worker who owns no capital but has to rely on using the capital of other people to earn a paycheck. And while we are at it we should keep income tax rates low as well. More than 80% of tax revenues collected at the top tax rate is paid by small business owners, who account for 70% of all jobs.

Capital is what makes workers productive and able to command a big paycheck. Capital has become almost completely mobile over the past 20 years due to fast communications and low transaction costs in financial markets. The owner of capital can now move assets from anywhere, to anywhere, at virtually no cost. But the worker cannot move so easily. The key for the worker, and the economy, is to keep American capital here in America.

We are not competing for jobs with China, India, or anyone else. (Cavemen all had jobs; they all hunted dinosaurs.) We are competing for capital. High corporate tax rates and nonsensical regulations drive capital out of America to other places. (US companies carry an overhead cost burden of 22% relative to other countries due to tax and regulatory policies.) The workers paycheck goes with the capital when it leaves.

JR

John Rutledge

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