If there were no profits tax, it would proceed if and only if it expected the rate of return on the project to exceed the interest rate on the loan. Now suppose that there is, say, a 35 percent tax on profits. If investment is financed with debt, profit taxes only fall on returns over and above the interest rate, which means that they shouldn’t affect investment choices. The immediate point, however, is that the corporate profits tax isn’t a tax on capital, it’s a tax on a particular aspect of corporate financial structure. For example, the Tax Foundation predicted that the capital stock would rise by 9.9 percent, or more than $6 trillion.

Source: International New York Times April 09, 2021 15:45 UTC