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1 Robert Carroll, The Economic Consequences of Being Left Behind: A U.S. Business Tax System That Is out of Line Internationally 1 (2008)

handle is hein.taxfoundation/ffbcdxz0001 and id is 1 raw text is: FOUNDATION The Economic Consequences of Being Left Behind: A U.S. Business Tax System that is Out of Line Internationally Fiscal Fact No. 123 By Robert Carroll April 4, 2008 The costly nature of the U.S. business tax system was underappreciated during the late 1980s and the 1990s, but now our corporate tax is coming in for some overdue and well deserved criticism. Proposals for reform have been offered by prominent leaders of both parties, and academics have also shown increased enthusiasm for major changes if not fundamental reform. Currently, the U.S. business tax system imposes substantial economic costs by disrupting and distorting many business decisions. The result is less investment overall and an inefficient allocation of what investment we do have. Rather than letting investment flow to the sectors of the economy that produce the most value, tax considerations steer investments into less productive areas. This relatively smaller, poorly allocated U.S. capital stock translates into an American workforce that has less capital to work with and therefore earns lower wages. As long as our political leadership ignores or fails to explain the inevitable connection between workers' wages and the taxation of capital income, our tax system will continue to cause unnecessary damage to our nation's economic performance and to the living standards of American workers. The costly nature of the U.S. business tax system is particularly alarming in light of the trends among our major trading partners. As shown in Figure 1, the U.S. dramatically lowered its corporate income tax rate in 1986-dropping the federal corporate tax rate from 46 percent to 34 percent. Despite its status as a low-tax rate country two decades ago, however, the United States has fallen behind due to the steady decline in corporate tax rates abroad.

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