A recent Wall Street Journal op-ed by UCLA economics professor Lee Ohanian and Nobelist Edward C. Prescott points to the large decline in the creation of new start-up businesses as a major factor in the lack of business fixed investment. The authors argue that policies hampering entrepreneurs need to be changed. They point to immigration reform that increases the pool of skilled workers, tax reform that reduces the corporate income tax, and changing Dodd-Frank financial regulations to make it easier and cheaper for small businesses to get loans.
I continue to believe that slashing business tax rates (and ultimately abolishing the corporate tax) would be the single most important economic-growth policy right now. And importantly, small business S-corps must be allowed to take advantage of any lower C-corp tax rate.
A recent study from the Tax Foundation, using a dynamic simulation model, argues that cutting the federal corporate tax rate from 35 to 25 percent would, over 10 years, raise real GDP by more than 2 percent, increase private business-capital investment by more than 6 percent, boost worker wages by 2 percent, and increase total federal revenues by nearly 1 percent.
I would add to this the need to repatriate U.S. profits lodged overseas, which are taking advantage of lower foreign tax rates. A small penalty rate of 5 percent could bring back $1 trillion.
Let’s bring American companies back home. There will be more growth, more investment, more jobs, and much higher wages.
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