Will President Trump’s Corporate Tax Cuts Spur Business Growth?

An obscure case study on corporate tax “increases” may be showing the cuts will produce a big expansion in business.

A more concrete answer will not be known until 2019, but business has been kicking into high gear since the tax cuts passed in December.

A study by the Federal Reserve may have a crucial answer economics wise according to the Tax Foundation:

Add another study to the growing

literature of the importance of state

tax policy on economic outcomes. On January 2nd, the D.C. branch of the Federal Reserve released an article by Professor E. Mark Curtis of Wake Forest University and Ryan A. Decker of the Federal Reserve examining how state tax policies impact employment at start-ups. They find that the corporate tax has the most robust identifiable impact on startups. In their words:

… [W]e find that increases in corporate tax rates have a statistically and economically significant negative effect on employment among start-up firms. Specifically, for every one percentage point increase in the corporate tax rate, employment in start-up firms declines 3.7 percent.

The finding of the significance of state corporate income taxes is in line with other studies on taxes and growth. Though the Curtis and Decker study only finds statistically significant impacts on start-up employment with regard to corporate income taxes (and does not find statistically significant results for individual income taxes or sales taxes), corporate taxes are generally those that are considered most influential on economic growth in the literature.

For example, Jens Arnold et. al. of the Organisation for Economic Co-operation and Development (OECD) found in an extensive panel review that corporate income taxes are most harmful to growth, followed by personal income taxes, then consumption taxes, and finally property taxes.

found in an extensive panel review that corporate income taxes are most harmful to growth, followed by personal income taxes, then consumption taxes, and finally property taxes.

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