In this report, Fox and Liscow argue that, while conventional wisdom holds that we should lower taxes on corporations because of international competition, two recent changes militate in favor of higher corporate taxes, which would close the deficit, fund social programs, and reduce inequality. First, changes in tax law have increasingly targeted the corporate tax at economic “rents,” the supersized returns that businesses receive when they enjoy advantages like market power. Because taxing rents is progressive and does little to harm economic activity, a higher rate is justified. Second, shifts in the American economy have allowed companies to earn more economic rents, increasing the revenue a tax on rents could raise — and increasing the appeal of the tax as a deterrent to harmful behaviors like lobbying government officials to get or maintain market power. Although the authors cannot say exactly what the corporate rate should be, principally because the international dimension remains so important, they offer reasons to favor a higher rate and describe reforms that could help ease the adoption of higher, but still efficient, taxes on corporate returns. Fox and Liscow suggest that, at minimum, proponents of lower corporate tax rates present an incomplete picture and that the “lower corporate tax rates” conclusion is a nonobvious one.


Corporate Finance | Law and Economics | Tax Law

Date of this Version