I recently questioned two connected remarks by Wall Street Journal reporter Richard Rubin that (1) “Each percentage-point reduction in the 35% corporate tax rate cuts federal revenue by about $100 billion over a decade” and that (2) “independent analyses show economic growth can’t cover all the costs of rate cuts.”
That first remark–about each percentage-point reduction in the rate losing $100 billion over a decade–is an interpretation of pages 178-79 from a Congressional Budget Office (CBO) report on “Options for Reducing the Deficit.”
But the CBO was just talking about raising the corporate rate by one point, not cutting it 10-20 points. That can’t be converted into a rule of thumb because each percentage point reduction in the top corporate tax rate can’t lose the exact same amount of dollars. A percentage point reduction in a 35% rate loses more static revenue than a percentage point reduction in a 30% rate, which loses more than a percentage point reduction in a 25% rate, and so on.
Yet even for a single percentage point, I called the $100 billion 10-year projection a “bad estimate” because it assumes zero change in the economy and zero change in tax avoidance (“elasticity”).