Welfare Analysis of the Corporate Tax Policy in America

This paper examines the welfare effects of corporate taxes to find the welfare improving optimal corporate tax rate in America. For this purpose, we develop a computable general equilibrium (CGE) model. The CGE model is then applied to data from America and simulation analysis is conducted. We then analyze the effects of the corporate tax to find the welfare improving optimal corporate tax rate in America. Under the constraint of less than 10 percent tax revenue increase, the optimal corporate tax rates are 24.2 percent for agriculture, 25.2 percent for manufacturing, 26.2 percent for services, and 29.2 percent construction. Compared with the current corporate tax rates, the optimal corporate tax rates for manufacturing, services and construction are the same or higher. In particular, the optimal corporate tax rate for the construction sector is 4 percent higher than the current rate. Tax policy to improve welfare should consider these differences between sectors as long as it does not generate other negative effects on national economy.