For example, it is relatively easy for a company to move its operations or choose to locate its next investment in a lower-tax jurisdiction, but it is more difficult for a worker to move his or her family to get a lower tax bill. One key reason that capital is so sensitive to taxation is because capital is highly mobile. Neoclassical economics helps explains this process.Įvidence shows that of the different types of taxes, the corporate income tax is the most harmful for economic growth. If individuals supply more work, or if businesses supply investments in new equipment or factories, this creates more economic output. The individual income tax likewise affects how much people are willing to work by creating a wedge between what an individual is paid and what they receive after taxes. For example, the corporate income tax rate and cost recovery provisions are important determinants of the cost of capital, which affects how much people are willing to invest in new capital, and in where they will place that new capital. Taxes play a role in decisions to work and to deploy capital, because taxes affect the return to labor and capital.
The supply of labor and capital is determined by their respective prices.
#Vacancy home for sales and economic impact drivers#
Under a neoclassical economic view, the main drivers of economic output are the willingness of people both to work and to deploy capital, such as machines, equipment, factories, etc. To understand how tax policy affects economic growth, we should begin with an understanding of what drives economic growth.
Additionally, I investigate the timing of these changes and whether there is economic evidence of changes thus far. In this testimony, I discuss the relationship between taxes and economic growth, the pro-growth impacts of the Tax Cuts and Jobs Act, and its distributional impact. However, economic growth, spurred by tax reform, takes years to occur. economy, resulting in a higher level of GDP, higher wages for workers, and more full-time equivalent jobs. The Tax Cuts and Jobs Act is not perfect, but as passed, it is expected to grow the U.S. In December, Congress passed a historic tax reform package, which made the U.S. Testimony Before the United States Joint Economic Committee
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