Chairman Neal, Ranking Member Brady, and Members of the Committee:
Thank you for the opportunity to testify on the important topic of the disappearing corporate income tax. I am professor of the practice of economic policy jointly at the Harvard Kennedy School and in the economics department at Harvard University. I am also a nonresident senior fellow at the Peterson Institute for International Economics. I do research and teaching on a wide range of economic policy issues and I have worked on business tax reform, in particular, for more than 15 years.
In my testimony today I will make four points:
- Corporate tax collections are very low both in historical perspective and compared with other countries. This contributes to the overall low level of revenue.
- The 2017 tax law (Public Law 115-97) is a major reason for this revenue loss, with its total cost likely to be even larger than was estimated when the law originally passed.
- There is no evidence that the 2017 tax law has made a substantial contribution to investment or longer-term economic growth. In fact, business investment growth has slowed to nearly a halt while economic growth has been propped up by increases in government spending.
- Going forward, a well-designed business tax reform could both increase revenue and encourage more investment and innovation.
I will now elaborate on each of these points.