There has been bipartisan agreement for some time now that America must lower its corporate tax rates in order to remain competitive in world markets. Despite that, there hasn’t been the political willpower to get anything done about it. Here, Dan Mitchell, a senior fellow at the Cato Institute, highlights work done by his colleague Chris Edwards on the success of corporate tax reduction in the U.K.
My colleague Chris Edwards recently shared the findings from an illuminating study published by the London-based Centre for Policy Studies. It examines what’s happened in the United Kingdom as the corporate tax rates has dropped from 35 percent to 20 percent over the past 30 years. Here’s some of what Chris wrote about this report.
New evidence comes from Britain… It shows the tax rate falling from 35 percent to 20 percent since the late 1980s and corporate tax revenues as a percentage of gross domestic product (GDP) trending upwards. As the rate has fallen, the tax base has grown more than enough to keep money pouring into the Treasury. …the CPS study says, “In 1982-83 when the rate was 52%, corporation tax receipts yielded revenues equivalent to 2% of GDP. Corporation tax now raises over 2.3% of GDP when the headline rate is at just 20%.”
And keep in mind that GDP today is significantly greater in part because of a better corporate tax system.
Here’s the chart from the CPS study, showing the results over the past three decades.
What remains to be seen is, will America’s politicians dare to recreate the success displayed by the U.K., or will they remain inert on one of the most vital issues the country faces today?