The Disappearing Corporate Income Tax

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:

1. Corporate tax collections are very low both in historical perspective and compared with other countries. This contributes to the overall low level of revenue.
2. 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.
3. 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.
4. 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.