Toggle open close
In March, the White House announced the American Jobs Plan a proposal to spend $2 trillion on infrastructure and other projects paid for by an increase in the corporate income tax rate from 21 percent to 28 percent.REF As lawmakers consider the merits of the proposal, it is helpful to review important aspects of how corporate taxation affects economic activity and to give an estimate of the effects of the higher tax rate.
The estimate presented here uses a simple set of elasticities to give lawmakers an idea of the effect that a seven-percentage-point increase in the corporate tax rate would have on incomes. I estimate that the proposed increase in the corporate income tax would reduce long-runREF gross domestic product (GDP) by about 0.96 percent, or about $1,650 per household.REF