New Research Indicates that Corporate Tax Cuts Boost Capital Investment

As the on-again, off-again saga of tax reform keeps tax executives on edge, debate continues to rage (or, at times, sputter) on over the shape any overhaul should take. Lower corporate tax rates are a favorite proposal of the President and among the most likely potential change to make it into any actual legislation.

Proponents of this policy recently caught a boost from Columbia Business School Professor of Accounting Urooj Khan in an article titled “Lower Corporate Taxes Would Spur Capital Investment.”

Whether or not the claim in that headline holds water has been argued for years, but Khan claims to have completed the research to prove it. He notes that among nations in the Organization for Economic Cooperation and Development (OECD), the United States imposes the highest corporate tax rate, at roughly 39 percent (including both state and federal taxes). The average corporate tax rate among OECD member countries is about 25 percent. Together with colleagues from Harvard and Duke, Khan examined US rates and average OECD rates over a period of nearly four decades. The academic researchers found that in periods when US rates were relatively high (as they have been for the past couple of decades), US companies tended to hold back less of their profits for next-quarter domestic investments.

The CFO.com article is one of a series of four articles by tax and accounting experts hashing out the pros and cons of a cut in corporate tax rates. David McCann’s overview of the series, which I’d also recommend, is followed by some lively comments.