For example, the House Republican tax plan introduced last year would pay for tax rate
cuts in part by eliminating the tax deduction for state and local income taxes.
Because the United States runs a trade deficit, the tax would raise lots of money, which in turn could
be used to reduce the corporate income tax rate, perhaps to 20 percent from its current 35 percent.
President Obama proposed corporate tax changes that would have lowered the rate on
businesses to 28 percent from its current 35 percent while changing its structure.
The tax system would cause fewer distortions, because companies would have less incentive to relocate operations to low-tax jurisdictions.
Economists believe that imposing this tax would cause the value of the dollar to rise on currency
markets, which would offset the tax on imports, and so consumer prices wouldn’t rise.
Even economists who believe tax cuts generate growth do not believe that faster growth is enough to prevent lower taxes from increasing the deficit.
