Do Temporary Tax Cuts Grow the Economy?

Section: Members Highlights / WTA Blog
28 June 2017 | Tax Foundation / United States
United States

The Tax Foundation has just released a new report analyzing the impact of a temporary corporate tax cut on economic growth.

Some federal lawmakers have suggested that temporary (rather than permanent) corporate tax cuts could boost the economy while being easier to pass politically.

But the numbers tell a different story. In fact, a temporary corporate tax cut would do little to help the economy.

Temporary cuts may create a windfall for corporate shareholders, pension funds, and retirement accounts, but they would do little to grow the economy in the long run or raise the wages of everyday Americans.

What’s more, temporary corporate tax cuts would be harder on the budget than permanent ones. Due to increased economic growth, permanent cuts would cost $722 billion less over 10 years.

Key findings:

  • A temporary cut in the corporate income tax rate is substantially less effective at generating economic growth than a permanent cut.
  • A ten-year reduction in the U.S. corporate income tax rate to 15 percent would boost investment and growth over the first seven years of the policy, but then reduce growth.
  • The specter of a future tax increase makes investment under a temporary low rate less enticing, especially for long-lived assets.
  • A temporary corporate income tax cut is most likely to result in higher payouts to shareholders of corporations; a permanent corporate income tax cut has a much better chance to result in increased wages as well.

Learn more by reading the full report: