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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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