The Problen with the Corporate Tax - New York Times

With the public uproar over rising gas prices, one presidential candidate's idea to temporarily cut the gas tax is getting the most attention. Most economists dismiss this plan as an effective response to the current spike in gas prices. Another candidate, John McCain, has proposed a tax cut that is lost in the general public, but some economists are realizing its merit. McCain plans to reduce the corporate tax on businesses. While it seems that corporations pay a corporate tax, ultimately the individuals that buy goods and services from the company pay the corporate taxes. Money paid for corporate tax results in lower returns on capital, lower wages, and smaller investment in research and development. Cutting the corporate tax would initially give a boost to after tax profits and stock prices. Rising stocks lead to more capital investment which leads to greater productivity, resulting in higher wages for employees and lower prices for consumers. The $100 billion deficit in tax revenue caused by the tax cut will be recouped from other taxes. Higher wages mean employees pay more income taxes and higher stock prices mean investors pay more taxes also. McCain says budget cuts will make up the remainder of the difference. The full article can be found at http://www.nytimes.com/2008/06/01/business/01view.html and is worth the quick read.