#Forbes Money Investing Corporate Tax Cuts Don’t Always Lead To More Jobs, New Research Says
Key Highlights :
The debate over the effectiveness of corporate tax cuts has been a contentious one for years. Some say it is job seekers who benefit the most, while others see it as a giveaway to the rich. A new paper distributed by the National Bureau of Economic Research has shed light on the issue and suggests that the answer is not so straightforward.
The paper, titled “Who Gains from Corporate Tax Cuts?”, was written by James Cloyne from the University of California, Davis, Paolo Surico from London Business School, and Ezgi Kurt from Bentley University. It suggests that the response to a cut in marginal corporate income tax rates or an increase in investment tax credits depends on the type of business.
The authors found that goods producers are likely to increase their capital expenditure and employment in response to tax cuts. This means that manufacturers, for example, could benefit from tax cuts and potentially create more jobs.
On the other hand, companies in the service sector are more likely to use any tax windfall to increase dividend payouts. The authors found that following a 1% cut in marginal tax rates, service sector firms increased dividend payouts significantly by up to 5%. However, they did not adjust wage bills at all.
This means that tax cuts in the service sector are more likely to benefit shareholders, who are often already wealthy. This is especially concerning as services make up 78% of the U.S. economy, while manufacturing comprises only 11%.
The authors suggest that if policymakers want to ensure that tax cuts lead to job creation, they should focus on goods-producing firms rather than on all corporations. This would ensure that the benefits of tax cuts are spread more evenly across the economy and that job seekers are not left behind.
