The economic rationale for lower corporate rates is to increase the return on projects and thus to stimulate hiring and investment. Countries have another, more mercenary motive: to stop multinationals from fleeing to tax havens.
Reducing the corporate tax rate by 10 percentage points relative to other countries boosts reported profits by anywhere from 4% to 22%, according to a survey of research by Dhammika Dharmapala at the University of Chicago. Most countries have concluded “it’s impossible to police the shifting of profits,” says Martin Sullivan, chief economist of the publication Tax Analysts. “So if you set your rate too high you’re going to lose revenue.”
People, however, are a lot less mobile than capital, so revenue-hungry governments tap sales, payroll and income taxes, including those on the rich.
Read more at The Wall Street Journal