Mark Thoma: Broadening the Base and Lowering the Rates Is Good Policy, But Not a Short-Run Employment Booster
There are better ways to subsidize positive spillover-creating businesses than a 3% point tax break--investment tax credits come to mind. Otherwise, broadening the base and lowering the rates is always good policy--but it won't work short-run miracles.
Corporate tax cut: Good idea, but won't stimulate economy: The White House is proposing to cut corporate income taxes from 35 percent to 28 percent. President Obama also recommends that manufacturers get a further cut, to 25 percent, and he wants to impose a minimum rate on foreign earnings…. [T]he cut in the tax rate will be accompanied be closing loopholes, i.e. a broadening of the base. Thus, every company receiving a tax break will be matched somewhere else by companies experiencing a tax increase….
Making the corporate tax system more equitable and more efficient is important, and this proposal takes steps in this direction, particularly on the equity front…. However… we shouldn't expect too much in terms of its ability to stimulate the corporate sector and the overall economy.