One of Donald Trump’s signature election proposals was a vow to cut the corporate tax rate from 35% to 15% during his presidency—one of the proposals many voters (and the stock market) have clearly been the most enthused about. Meanwhile, the OECD prominently took the view this week that much of what the president-elect has proposed will most likely become legislation, given the sharp increases to its just-announced economic forecasts. This is certainly a brave move in what is still the Trump honeymoon period. Nevertheless, given that a cut in the corporate tax rate was such a big item on his agenda, the fact that Congress tentatively seems to be backing him, and the near certainty that there will be widespread disappointment if he is unable to follow through on this, there would seem to be a very good chance that a sharp decrease does indeed take place (something only a few months ago, we wrongly felt would be fairly unlikely). In this week’s Economics Weekly, we look at the corporate tax rate and what evidence there may be in regard to how changes to it may affect the economy and employment.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.