This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published April 19, 2012 on Forbes.com.
Persistent economic fallacies hurt working people and the poor the most. They are the ones most in need of the new jobs and higher wages that capital investment and economic growth produce. And they suffer the most from unemployment and declining wages and incomes when the economy falters. Self-styled Progressives are the source of the economic fallacies that are hurting working people and the poor today.
One common fallacy popular among self-proclaimed Progressives is to reply to the point that America now has the highest corporate tax rate in the industrialized world at nearly 40% with the counter that the average effective corporate tax rate is only around 25%. But it is the marginal tax rate on the next dollar earned, not the average rate, that influences new investment, business expansion, and hiring.
Pro-growth tax reform would involve reducing that top rate in return for closing many of the loopholes that make the average rate so much lower. The average rate would rise as a result. But the lower marginal rate would increase incentives for more capital investment, business expansion and job creation.