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Foreign leaders are also learning another lesson: Lower corporate tax rates with fewer loopholes can lead to more, not less, tax revenue from business. The nearby chart shows the Laffer Curve effect from business taxation. Tax receipts tend to fall below their optimum potential when corporate tax rates are so high that they lead to the creation of loopholes and the incentive to move income to countries with a lower tax rate. Ireland is the classic case of a nation on the "correct side" of this curve. It has a 12.5% corporate rate, nearly the lowest in the world, and yet collects 3.6% of GDP in corporate revenues, well above the international average.
The U.S., by contrast, with its near 40% rate has been averaging less than 2.5% of GDP in corporate receipts. Kevin Hassett, an economist at the American Enterprise Institute who has studied the impact of corporate taxes, says the U.S. "appears to be a nation on the wrong side of the Laffer Curve: We could collect more revenues with a lower corporate tax rate."
The U.S., by contrast, with its near 40% rate has been averaging less than 2.5% of GDP in corporate receipts. Kevin Hassett, an economist at the American Enterprise Institute who has studied the impact of corporate taxes, says the U.S. "appears to be a nation on the wrong side of the Laffer Curve: We could collect more revenues with a lower corporate tax rate."
Yes. That's clearly the most obvious fit. If you throw out every data point but Norway. WSJ, you are teh awesome.
A small wrinkle with even that interpretation: as Brad deLong has pointed out,
The revenues plotted on the vertical scale include oil excise taxes levied on corporations. The tax rates plotted on the horizontal scale do not--hence the Norway "tax rate" of 28% rather than the correct 52%.
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