“Sustainable Growth, New Knowledge and Corporate Income Taxes”

This paper argues that economic growth is sustainable, that new knowledge is the key to that growth and that corporate income taxes are an obstacle to sustainable growth because of their effect on knowledge production. First, this paper articulates the argument by David Deutsch, the renowned physicist, that sustainable progress is both possible and necessary. This is important to tax policy because of the ascendancy of the anti-growth literature and the regulatory role of the tax system with regards economic policy. Secondly, this paper suggests that Deutsch’s information-theoretic approach to explaining the fundamental nature of reality – constructor theory – makes it possible to explain why new knowledge is the only possible route to sustainable economic growth. Whilst knowledge production is already a central justification for R&D tax regimes, Deutsch provides us with an explanation of the role of knowledge that justifies a much deeper penetration of a knowledge production objective into tax policy. Thirdly, this paper argues that corporate income taxes are an unnecessary burden on knowledge production and, therefore, constitute an obstacle to sustainable economic growth. The argument runs that a firm’s pure profit is the direct result of the quality of the knowledge employed in production and that corporate income taxes almost exclusively tax pure profit. Given the downward trend of global productivity growth in OECD countries, this paper suggests decreasing the revenue-raising role of corporate income taxes. To ensure revenue neutrality, this would require a greater emphasis on the taxation of distributions and consumption.