I recently questioned two connected remarks by Wall Street Journal reporter Richard Rubin that (1) “Each percentage‐point reduction in the 35% corporate tax rate cuts federal revenue by about $100 billion over a decade” and that (2) “independent analyses show economic growth can’t cover all the costs of rate cuts.”
That first remark–about each percentage‐point reduction in the rate losing $100 billion over a decade–is an interpretation of pages 178–79 from a Congressional Budget Office (CBO) report on “Options for Reducing the Deficit.”
But the CBO was just talking about raising the corporate rate by one point, not cutting it 10–20 points. That can’t be converted into a rule of thumb because each percentage point reduction in the top corporate tax rate can’t lose the exact same amount of dollars. A percentage point reduction in a 35% rate loses more static revenue than a percentage point reduction in a 30% rate, which loses more than a percentage point reduction in a 25% rate, and so on.
Yet even for a single percentage point, I called the $100 billion 10‐year projection a “bad estimate” because it assumes zero change in the economy and zero change in tax avoidance (“elasticity”).
Read the rest of this post →