Understanding the Corporate Income Tax

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.

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About the Author

 

Kevin A.
Hassett
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.



    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

  • Phone: 202-862-7157
    Email: khassett@aei.org
  • Assistant Info

    Name: Emma Bennett
    Phone: 202-862-5862
    Email: emma.bennett@aei.org

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