For Jobs: Short-Term Tax Cuts or Permanent Reductions?

By October 29, 2008Economy, Taxation

From WSJ’s Real Time Economics blog, “Don’t Expect Too Many Jobs From Tax Proposals,” an informative piece by Martin Vaughn on the campaigns’ tax positions:

[Business] groups and some economists say the most important change that could promote job creation is a permanent tax rate cut.

“Overall, you need a tax code that encourages investment by U.S. companies, and that’s going to lead to job creation,” said Dorothy Coleman, vice president for tax policy at the National Association of Manufacturers.

Some recent academic studies indicate that the burden of high taxes falls at least as heavily on workers as it does on shareholders.

“It’s increasingly apparent that the benefit of a lower corporate tax rate is higher wages for workers,” said AEI’s Brill.

McCain wants to cut the corporate tax rate to 25% from its current level of 35%. This tax cut may be partially offset with revenue raisers such as withdrawing benefits from the oil and gas industry, but it would not be fully offset, Holtz-Eakin said.

Obama would also consider lowering the corporate tax rate, if it could be paid for by closing existing loopholes. That revenue-neutral corporate tax reform model is unpopular with business groups and is consistent with a recent plan put forward by House Ways and Means Chairman Charles Rangel (D., N.Y.).

Speaking of AEI, the Washington Post today publishes an op-ed by Brill and his AEI colleagues, “The Real Problem with Obama’s Tax Plan.”

If rewards for America’s entrepreneurs and firms are reduced through higher marginal tax rates, their incentives to earn, invest and create jobs will be diminished. Americans will have less incentive to save, and firms will have less incentive to pay dividends. Tax avoidance will become more profitable. A smaller capital stock will mean a less productive economy and lower wages for middle-class and other workers. These disincentive effects also mean that the revenue gain is likely to be smaller than Obama envisions.

 

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