The Instigator
Pro (for)
6 Points
The Contender
Con (against)
0 Points

Higher corporate tax rates encourage business investment.

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Voting Style: Open Point System: 7 Point
Started: 4/25/2011 Category: Economics
Updated: 7 years ago Status: Post Voting Period
Viewed: 5,440 times Debate No: 16125
Debate Rounds (3)
Comments (12)
Votes (2)




This is my first debate, so please be gentle with me...:) Initially, you may say, "Wait, you mean 'lower' rates, right?". No, it's my argument that corporations view periods with historically low tax rates as opportune times to take their profits, as opposed to reinvesting them. One of the main goals of a CEO is to pay as little corporate tax as possible. Therefore, when corporate tax rates are historically high, the CEO is much more motivated (encouraged) to reinvest in their company, rather than pay all of that "high" income tax on any profits.


I would like to welcome my opponent to and thank him for instigating this debate!

My opponent has provided a single flawed (as I will show) argument to support the contention. Moreover he has not bothered to back his argument with any data what so ever.

The contention is that the corporation has a certain amount of money left over after transaction of all business. They can either choose to book profit or reinvest. A higher tax rate will give them the incentive to reinvest.

However a higher tax rate will mean there is less money available after the business is conducted! My opponent has assumed that this money will remain same whether the tax rate is increased or decreased. Less available money will mean that in general both profit as well as reinvestment will decrease!

The reasons for the less money include.
1. More money has to be paid to government
2. Economies with less tax regime will be more economical thus out-competing the countries with more tax.
3. Companies will be tempted to invest in economies with lower taxes, thus slowing down the whole economy.

If we compare effective tax rates [1][2] and GDP growth rate [3] for various countries, we see that in general countries with lower tax rates have performed surprisingly well. For example - Singapore is having a 11.5% tax is having a GDP growth of 14.5 % which is 3rd highest in the world! On other hand most of the highly taxed economies (US, Canada, Russia, France, Germany ) with 30% + taxes are stuck at 2 to 3% growth rate. However let me warn that GDP growth depends on many factors so exceptions are possible. However as we go through the data, the general trend is quite obvious.

I look forward to the next round!

Debate Round No. 1


Thank you to my opponent for accepting this debate. I will try to keep my argument as simple as possible – so let me start with an illustration (example):

Scenario #1: Corporation ABC is budgeted a "pre-tax" annual profit of $1,000,000. The tax rate is effectively 35% (which is, basically, what it is now). So, the tax is $350,000 and, "after-tax" net profits of $650,000.

Scenario #2: Like Scenario #1 Corporation ABC is budgeted "pre-tax" annual profit of $1,000,000. However, the tax rate NOW is effectively 50% (which is, roughly what it was from the 1950's – 1980's). So, NOW the tax is $500,000 and, "after-tax" net profits of $500,000.

My simple argument is that the CEO of ABC corporation is more motivated to invest the "pre-tax" profits of $1,000,000 in expanding the company (hiring people, research, leases, etc.) when it will only cost $500k in net profit (50% tax rate), as opposed to the $650k it would cost in net profit with a tax rate of 35%.

Think about it… would you like to get something worth a million dollars and have to pay $650k for it, or only $500k? Pretty easy answer….huh? When taxes are high, CEO's are even MORE motivated to avoid them. The easiest, and most productive means to avoid them is through business expansion.

In a study title, "Having their cake and eating it too", which was published just two weeks ago by the "Canadian Centre for Policy Alternatives", the researchers claimed that:
"This study examines historical data on business investment and cash flow from 1961 through 2010, and, using econometric techniques, finds no evidence in the historical data that lower taxes have directly stimulated more investment."
They go on further to find that, "As a means of stimulating growth, employment, and even private business spending, the historical evidence suggests that business tax cuts are both economically ineffective and distributionally regressive."

Another way of looking at it is ‘the higher the corporate tax rate is, the more the government is enticing CEO's to reinvest in their companies to avoid paying that tax'.

As far as the rest of your argument goes, concerning international economies and comparable tax rates, I believe that those are irrelevant matters concerning my contention, and the basis for this debate.


My opponent has repeated his argument with an example completely ignoring the flaw I pointed out. So I will point out the flaw once more.

Scenario #1: Tax Rate: 35%, Pre tax profit 1,000,000
Scenario #2: Tax Rate: 50%, Pre tax profit 1,000,000

The scenarios are wrong!

In scenario #2, the pre-tax profit will be much lower. The reasons for this I have explained in the first round. As my opponent has not contested them, they stand.

As my opponents arguments are based on unrealistic scenarios and assumptions, they are invalid.

My opponent has quoted from a book (and a report based on the book) authored by Jim Stanford[1], who works for 'Canadian Auto Workers union, Canada’s largest private sector trade union'. Let me suggest that there is a conflict of interest.

Let me present a work of Alberto Alesina and Silvia Ardagna[2] who are economists at Harvard University [3][4]. Based on a study from period of 1970 to 2007 for several OECD countries, they conclude:

'Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases.'

I look forward to closing remarks from my opponent.

Debate Round No. 2


Thank you very much for your rebuttal and taking the time to debate this subject. Let me begin by addressing your contention that my scenario's are incorrect.

You stated in your rebuttal that "In scenario #2, the pre-tax profit will be much lower". And that, "the reasons for the less money include":
1. More money has to be paid to government
2. Economies with less tax regime will be more economical thus out-competing the countries with more tax.
3. Companies will be tempted to invest in economies with lower taxes, thus slowing down the whole economy

To address these points:
1. EBIT = "Earnings before Interest and Taxes". This is a term well-known to CEO's and CFO's the world over. It's basically a companies "Operating Earnings". You state that 'more money has to be paid to the government' so my scenario is inaccurate. I disagree. The $1,000,000 in earnings would be the same in both scenarios because they are PRE-TAX earnings. No money has been paid to the government in either Scenario.
2. While, theoretically, this point is true. I believe it to be irrelevant to this debate. This more of point in discussing international trade agreements & tariffs.
3. Companies cannot "write-off" as expenses, investments in other companies or economies, so there isn't a "tax incentive" for them to do so. A CEO's motivation is to lower the companies tax burden while simultaneously growing their own company.

In short, the scenario's I've illustrated are correct, and valid. They are indicative of the way 'Real World' CEO's view taxes and their effect on business decisions. I know this from first-hand experiences.

In your rebuttal, you referenced the study, 'Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases'. While this study may be accurate and insightful, it doesn't address the topic of this debate. It addresses tax cuts vs. increased government spending. Hence, I find it irrelevant.

However, I did find an article which illustrates my point very well in an even more extreme example. The link is below.

To Summarize, higher corporate tax rates DO encourage business investment. The higher the tax rate, the more motivated a CEO is to avoid paying the taxes. The best way for them to do this is to spend the money on growing their business (invest) instead of giving a large amount to the government as taxes on their NET profit.

The Mind of a CEO:
Tax rates high = Cheap to reinvest in company
Tax rates low = Cheap to declare profits

Thank you for the opportunity to debate this subject - I look forward to many more discussions!


Most of the final round has been devoted by my opponent to address my argument that pre-tax money (EBIT) will be less in a high tax regime. By doing this he has tacitly conceded that if my objections are valid, they represent a flaw in his argument.

Let us go through each of his rebuttals one by one...

Contention #1: More money has to be paid to government

My opponent argued that the tax has to be paid after this money is calculated. So this money should be same.

What he has failed to understand is that more money has to be paid by everyone, including the suppliers of the company. As a result the suppliers will increase there price leading to higher cost. Similarly employees too have to pay a larger tax. This may force the company to increase compensation. All these taxes will be reflected in the final sales price of the output. Higher sales price will decrease consumption leading to depressed economy and lower pre-tax profit. What we need to understand is that tax is not decided after everyone has made the money. The tax rates are known from start.

Contention #2: Economies with less tax regime will be more economical thus out-competing the countries with more tax.

My opponent has declined to consider this point arguing that this concerns international trade so it is irrelevant. I would like to state that those who believe international trade to be irrelevant are headed for extinction. Suppose a company loses out its costumers since its foreign rivals (who enjoy less tax) out compete it. Let me suggest that the company will have less EBIT because of less revenue.

Contention #3: Companies will be tempted to invest in economies with lower taxes, thus slowing down the whole economy

The rebuttal was that there is no tax incentive to do so. However it is possible that the CEO may choose to forgo some tax incentive to invest in an economy which has a low tax rate and more growth as that will be more beneficial in long term.

We can conclude:
Low tax rate: Lots of money. Some is reinvested. Some is taken as profit
High tax rate: No money! No reinvestment! No profit!

My opponent has raised an interesting objection. I had posted a link to a research paper which he has acknowledged to be 'accurate and insightful'. However as per him the paper is all about 'tax cuts vs. increased government spending' and not about 'low tax vs high tax'. When government charges higher taxes, it typically increases its spending also. 'Increasing government spending' is usually synonymous with 'high tax regime'. Thus this paper is highly relevant.

In the last round, my opponent has provided a link to a book authored by a trade union economist. In this round he has decided to refer to an article written by a fiction writer![1]

In this debate the voters have to decide whether they support a theory being argued by fiction writers and trade union economists but being contradicted by studies carried out by respectable and independent researchers.

They have to vote for or against a flawed theory which even defies common sense.

Vote Con.

I would like to thank my opponent and wish him best of luck for future debates!

Debate Round No. 3
12 comments have been posted on this debate. Showing 1 through 10 records.
Posted by aerobiotic 5 years ago
Here is an article (ref 1) on this subject that shows statistics that agree with the Pro point of view, as do I. There were some comments from the Con side the mentioned a lack of figures so I offer this up.

Ref 1 states that "At least until top marginal tax rates get somewhere above 50% increasing those rates does not correlate with slower economic growth, but rather with faster increases in real GDP."

Tax rates are graduated and progressive. So there is no harm in making the next dollar. Some people believe that if they were to make more money it might push them into the next tax bracket and cause them to pay that percentage of tax on their entire income. This is not true, only the money made in each bracket is taxed at that rate. See ref 2 page 14 for the tax rates.

Businesses can deduct a large amount of capital investments that would normally be depreciated over time by electing to deduct them under a section 179 deduction. This allows most capital reinvestment back into a company to in effect lower the companies profits and save the tax in the current tax year.

I'd assume a 50% bracket could be made higher up on the income scale. If a business did not want to pay 50% on that portion of profits they could use the section 179 deduction as well has hire more people (which is always a deductible expense for a business) to avoid this tax.

ref 1:

ref 2: (see page 14)

ref 3:
Posted by JustaWriter 7 years ago
During the 90's is when Wal-Mart reinvested in itself and expanded out into the wholesale market (Sam's Club) and international operations, only failing in Germany. In 2006 they not only gave up on getting into Germany, they sold off stores in North Korea. It was a good time to sell off because taxes were lower than they had been in decades, if ever. They don't specifically say, "We're doing it to avoid taxes on profit", but their investment and non-investing practices fit the strategies outlined by Pro.
Posted by baggins 7 years ago
@ JustaWriter
India has seen rapid growth since 90s in almost all sectors. Special mention has to be made about telecom and automobile industries. Americans mostly know about BPO and software, primarily because in those industries the clients are Americans and it affects them. Agreed that in BPO and software - Indians enjoy the cost advantage and they have been able to utilize it.

Incidentally, I just tried to see growth rate of Wal Mart (as the first company you mentioned) and it has been growing consistently for over 3 decades. Is there any evidence that Wal Mart invested more in 90s because of higher tax rates?
Posted by JustaWriter 7 years ago
A huge factor in India's growth was, and still is, what companies get by with paying their employees in India.

The growth in the 90's wasn't limited to internet bubbles. Corporations like Wal-Mart, Merck, Toyota, Ford, Target, Proctor & Gamble, and several others expanded significantly during the 90's creating jobs for millions. To avoid higher tax rates they reinvested in the company and expanded. It helped them, it helped the economy, and it helped the nation.
Posted by baggins 7 years ago
But the reason India was behind was high tax and regulation only!

Factors which take you from 61 to 76 can be easily established. The 92 to 95 increase in this case has not been even proved!
Posted by Ore_Ele 7 years ago
That is largely because of how far behind India was in the 80's

You have one HS student raise his grade from a 92 to a 95 and another raise his grade from a 61 to a 76, which one is better at learning?
Posted by baggins 7 years ago
@ JustaWriternd
I don't think growth in US (or otherwise) since 90s had thing to do with tax rate. In 1990s growth was powered by dot com - which later went bust. Similarly in last decade you had the housing boom + bust.

On other hand, In India we have clearly seen sustained high growth powered by lower tax (and overall reforms) since the 90s.
Posted by JustaWriter 7 years ago
I'm a little disappointed that Pro didn't reference the business practices of the 90's, where corporations did have higher tax rates and did in fact grow their companies by reinvesting in them to reduce their taxable income. Then compare the business practices of then to the practices of the past 10 years when they had the lower tax rates.
Posted by Greyparrot 7 years ago
This is going to be hella hard to do as con.
Posted by CiRrK 7 years ago
ah damn, missed it. But oh well
2 votes have been placed for this debate. Showing 1 through 2 records.
Vote Placed by Ore_Ele 7 years ago
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Total points awarded:30 
Reasons for voting decision: Con made an equivalency fallacy. This debate was looking at nothing but corporate income tax, while he was arguing taxes in general. He also had issues with correlation vs causation, and never fully addressed Pro's senerio.
Vote Placed by Cliff.Stamp 7 years ago
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Total points awarded:30 
Reasons for voting decision: Con did not understand you are taxed on profit, thus if you invest you are taxed less