Peacock Scholarship

The Effect of Corporate Taxation on Investment and Wages

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In 2017, President Donald Trump and Republicans in Congress successfully enacted the Tax Cuts and Jobs Act. This legislation slated the federal corporate tax rate to be reduced from 35 percent to 21 percent in addition to having some investments qualifying for immediate deduction as an expense (Auerbach 1). In passing this act, the White House Council of Economic Advisers predicted that reducing the corporate tax rate to 21 percent would lead to an increase in wages and it would “increase average household income in the United States by, very conservatively, $4,000 annually. … Moreover, the broad range of results in the literature suggests that over a decade, this effect could be much larger” (1). Some conservatives, such as Trump and the Republicans in Congress in 2017, have long argued that corporate tax rate cuts substantially benefit the economy by increasing investment, wages, and employment. On the other hand, opposers of corporate tax rate cuts have made the argument that these supposed benefits are not the reality of this economic policy and that what happens instead is corporations keep the money they save from these tax rate cuts, and wages and investment are not benefited in any sort of way (Hendricks 1). With my honors thesis, I will examine corporate tax rate cuts and their effects on investment and wages specifically. I will examine whether or not the benefits that Republicans and Donald Trump emphasized of increased investments and wages as a result of corporate tax rate reductions are true.

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  • 06/14/2022
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