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How to help struggling workers: Eliminate the corporate income tax?

Daily Ticker

The job market is still tough on many levels and wages are sitting at a record low as a share of U.S. gross domestic product, so how can we turn these trends around and best help workers?

Boston University economics professor Laurence Kotlikoff has thrown a counter-intuitive solution into the ring.

He writes in the New York Times: "What can workers do to mitigate their plight? One useful step would be to lobby to eliminate the corporate income tax."

You may wonder how giving corporations a tax bill of zero would unleash investment when companies are already hoarding equity at the highest levels this century, with one-third of non-financial corporations sitting on 82 percent of the $2.8 trillion in cash in corporate coffers. This includes company's like Apple (AAPL), Google (GOOG), and Exxon Mobil (XOM). Not to mention, many people may recall the story of General Electric (GE) already succeeding at paying no U.S. income tax a few years back. 

Related: Corporate America Will Dominate the World in 2014: The Economist

Kotlikoff's research finds that the corporate income tax hurts workers, not capitalists. He cites companies moving to avoid paying federal corporate tax and taking jobs with them. 

Kotlikoff also found through economic modeling that eliminating the corporate tax produces "rapid and dramatic increases in American investment, output and real wages." 

Related: American Workers Need Higher Wages AND More Mobility: Jason Furman

Kotlikoff has proposed making shareholders pay income taxes on their companies' profits, ensuring that shareholders and not wage earners make up for any revenue losses from eliminating the income tax to corporations. In the New York Times op-ed he also says higher personal income tax rates could replace loss in corporate income tax revenue. 

It's a policy prescription that seems politically implausible, so why start there? Check out the video to see Kotlikoff's response.

Related: Business leaders finally get something they want from Washington

Meanwhile, research from two economists at Stanford University and University of California-Berkeley, who studied changes to state corporate income taxes, found most firms choose to pay higher taxes and locate where their productivity is highest. Tech companies, for example, often opt to stay in Silicon Valley (California has a tax rate of 10%) versus moving to Nevada where there is no corporate tax rate. The study also found that firms' shareholders benefit more than workers from state corporate tax cuts. 

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