What this Means:

While there is uncertainty and debate regarding the extent to which lowering statutory corporate taxes to 20 percent might boost worker wages, the CEA's claim that workers’ income would rise by $4,000 to $9,000 is well above the top of the range of consensus estimates. And one can recount examples of countries that lowered corporate tax rates without a resulting rise in wages, such as the experience of the United Kingdom, which, as a large open economy, is in many ways comparable to the United States. If one goal of tax reform is to raise worker incomes, there are much more direct ways to go about doing so. We know that workers pay all of the payroll tax and that they receive most of the benefit from the Earned Income Tax Credit, so focusing on those areas provides a more direct benefit to workers.



Still, there are good reasons to reform the United States corporate tax system. Ideally, corporate tax reform should not have an adverse effect on government revenue, should reduce distortions that make people respond to tax incentives rather than underlying economic considerations, and should eliminate current incentives that discourage companies from distributing their profits to their shareholders. An ideal corporate tax reform would likely combine a lower tax rate with a broader tax base (including steps to combat profit shifting) and a more even treatment of different types of investment. But deficit-financed corporate tax cuts are more likely to hurt workers than help them.