Economic research shows that the corporate tax is harmful to workers’ wages and overall economic growth. If left to their own devices, politicians still wouldn’t be likely to reduce or eliminate the destructive tax. They only act when tax competition—whereby taxpayers shop around for favorable tax environments—forces their hand.
That’s why it is alarming that House Republicans—I repeat, House Republicans—are talking about a change to the corporate tax that would insulate it from competitive pressures going forward. The change in the Ryan-Brady blueprint (as in Speaker of the House Paul Ryan and Chairman of the Joint Economic Committee Kevin Brady) would turn the corporate income tax into a “destination-based cash flow tax” with many similarities to European-style value-added taxes. To be sure, it would also lower the U.S. corporate tax rate—which is currently higher than any other in the developed world—and move to a common-sense territorial system in which income would be taxed only in the country where it was earned. It would also alleviate some of the double taxation of savings and somewhat simplify the tax code, even as it could become a compliance nightmare for companies.
But it would be simpler to just do away with the corporate tax altogether, writes Veronique de Rugy.