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Leading Researchers Discuss Corporate Income Taxation's Effect On the U.S. Economy, Competitiveness, and Standard of Living.

WASHINGTON -- Full-Day Conference on Corporate Income Taxation and the Economy Features Five Papers, Keynote Address by Ed Lazear

Relatively high corporate income tax rates in the United States may depress wages, inhibit economic efficiency, reduce the competitiveness of U.S.-based companies, and send business investment overseas, according to a series of research papers presented today at a conference co-sponsored by the Alliance for Competitive Taxation (ACT) and the American Enterprise Institute (AEI).

The five papers, sponsored by ACT and released at the ACT/AEI conference on Corporate Income Taxation and the Economy, are designed to provide policymakers with independent, objective research that can be used as they contemplate major reform of the U.S. tax system. The U.S. House of Representatives has begun a series of hearings on different aspects of tax reform, and President Bush has indicated that he may make tax reform the centerpiece of his domestic agenda in 2007.

"The theory behind these papers and the joint conference is that sound policy depends on a solid foundation of sound research," said Glenn Hubbard, Dean of the Columbia Business School and ACT's Research Director. "As the Administration and Congress contemplate major reform of the U.S. tax system, ACT believes it is vital that policymakers and the public understand how high corporate rates affect where businesses choose to incorporate, the level of domestic investment, research, wages, and employment, and federal revenue, among other impacts."

Robin Beran, Director of Corporate Tax & Assistant Treasurer at Caterpillar Inc. and ACT's Chairman, said that, "U.S.-based global employers and their millions of American workers have a vital stake in ensuring that corporate income taxation in the United States treats them fairly and allows them to compete effectively worldwide. The best way to make that happen is to educate policymakers about the true effects of corporate income taxation on all aspects of the U.S. economy."

In addition to the papers, the conference featured a Keynote Address by Ed Lazear, Chair of the President's Council of Economic Advisers.

During the conference, these researchers presented papers on the following topics:

--Kevin Hassett and Aparna Mathur from the American Enterprise Institute examined the effect of corporate income taxation on wages and found that every one percentage point increase in corporate taxes results in a 0.7 to 0.9 percent drop in wages, and that in a global economy the burden of corporate income taxation increasingly falls on workers.

--Kenneth Judd at Stanford University studied the current U.S. corporate income tax system and concluded that in its present form it has a very significant, negative impact on economic efficiency. This is particularly true when key aspects of the modern economy, such as innovation, risk, and technological change are taken into account.

--Michael Devereux at the University of Warwick examined the relationships between corporate tax rates and corporate tax income in 20 OECD countries and concluded that international experience shows that higher corporate tax rates do not result in higher corporate tax revenues, and that while the average corporate tax rate has fallen over the last 20 years, average corporate tax revenue has increased.

--Dale Jorgenson at Harvard University studied the double taxation of corporate income and found that relieving double taxation would result in a welfare gain of $1.1 trillion.

--Joel Slemrod at the University of Michigan investigated the compliance costs of different approaches to tax reform and concluded that many of the alternatives would not save on compliance costs.

Research summaries of these papers, as well as complete versions of the studies, are available on the ACT Web site at www.competitivetaxation.org.

Following the conference, ACT-sponsored researchers will meet with members and staff on Capitol Hill to review their findings and answer questions about the intricacies of corporate income taxation.

About ACT

The Alliance for Competitive Taxation (ACT), a diverse alliance of global employers, believes that good public policy flows from credible research. To help foster informed debate, ACT sponsors independent academic research on the economic effects of U.S. corporate income taxation and engages in education briefings and other outreach activities designed to disseminate the research findings to policy-makers and the public.
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Date:Jun 2, 2006
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