Corporate Income Tax Effect on GDP

Abstract

This research investigates the mechanics of corporate income tax rates by analyzing their impact on investment and government revenue. The analysis will begin by deconstructing the financial accounting income statement to illustrate how corporate tax rates influence corporate earnings. Given the widespread yet superficial understanding of this topic, the present study aims to elucidate the intricate relationships between corporate income tax rates, investment decisions, and government fiscal health.

The research focuses on the case of Target Corporation (TGT) to explore the impact of the 2017 tax cut (reducing the federal rate to 21%) on corporate investment and spending patterns. By comparing Target's pre- and post-tax cut financial activities, the study seeks to identify potential changes in investment behavior resulting from increased retained earnings. Additionally, the research will briefly examine the potential effects of lower government revenue, as a consequence of reduced corporate tax rates, on national Gross Domestic Product (GDP).