Case Study in Corporate Taxes

The WSJ (sub req'd) provides further proof in the 2004 American Jobs Creation Act that cutting corporate tax rates increases U.S. investment and revenue.

This law gave American companies a one-year window in 2005 to repatriate earnings from foreign subsidiaries to the United States at a 5.25% tax rate. Normally companies must pay the 35% U.S. corporate tax rate, minus a credit for whatever foreign taxes they paid on those earnings.

The IRS examined the results from this tax cutting experiment and found that the money came back in a flood. More than 800 U.S. corporations repatriated $362 billion from foreign operations. Congress's Joint Committee on Taxation had predicted closer to $200 billion. These dollars are now being invested in the U.S., rather than remaining in Europe or China. This capital infusion may be one reason that U.S. business investment rose 9.6% in 2005 – the highest rate in more than a decade.

As the Journal points out, 5.25% of $362 billion is far better than 35% of nothing. But Democrats continue to ignore the realities of the correlation between lower tax rates, higher revenue and stronger economic growth - which is why the U.S. now has the second highest corporate tax rate in the world. It's hard to believe we still have any jobs left in the country with this type of policy.