A cut in US corporate taxes will generate higher US wages

A cut in US corporate taxes will generate higher US wages, by Morgans Australia Equity Research.

The paper by Kortlikoff simulates the economic and revenue impacts of the Republican ‘Unified Framework’ tax plan … [on] the entire world capital market. …

The researchers find that depending on the year considered the Republican tax plan raises GDP from between 3% and 5%. The plan increases real wages by between 4% and 7%. This suggests a rise in income of some $3500 annually on average per working American household.

The source of the increase in US output and real wages is the planned reduction in the US marginal effective corporate tax rate, from 34.6% to 18.6%. This expands the US capital stock by between 12% and 20% depending on the year in question. Due to the economy’s expansion, the tax plan is essentially revenue neutral.

This increase in income and wages reflects the mobility of global capital stock in response to corporate tax reform and the reduction of current, very high marginal corporate tax rates. Interestingly cuts in personal income taxes don’t seem to have the same positive effects.

hat-tip David Archibald