|We’re #1? America’s 39% Corporate Tax Rate Now Developed World’s Highest|
By Timothy H. Lee
Thursday, February 14 2013
Last April, our total corporate tax rate became the world’s highest after Japan reduced its rate several points to 36.8%. Two years from now, Japan’s rate is scheduled to decline even further, to 34.5%.
Other nations have similarly recognized the destructive economic effect of high corporate taxes, and conversely the beneficial effect of lower rates. In the Pacific region alone, South Korea reduced its rate to 22%, Thailand to 20%, Taiwan and Singapore to 17% and Hong Kong to 16.5%. Worldwide, the average corporate tax rate for industrialized countries is 25%, approximately 15% lower than our own.
To leaders of multinational companies, how does America’s outlier rate encourage investment or employment within its shores?
The simple answer is that we’re discouraging rather than encouraging business. In today’s era of increasing global competition and job mobility, our suffocating code is simply inexcusable and unsustainable.
We can no longer delay reduction and reform.
Consider that over more than two centuries, the United States of America gradually became the most prosperous and powerful nation in all of human history. That ascent occurred not by coincidence, but rather on the basis of our founding principles of limited government, individual liberty and entrepreneurial freedom.
Today, as illustrated by our corporate tax code, that dynamic is steadily and dangerously eroding.
Just this month, we learned that the nation’s unemployment rate rose last month to 7.9%, and our economy contracted in the final quarter of 2012. If it contracts again this quarter, when consumers feel the impact of higher taxes following January’s “fiscal cliff” increases, we will officially be in a recession.
Fortunately, there is encouraging news. Namely, a rare bipartisan consensus exists in favor of corporate tax reform and reduction. On Tuesday night this week, both Barack Obama and Marco Rubio specifically advocated comprehensive reform. Contrary to habit, Obama even acknowledged that tax reduction and reform will boost employment and domestic competitiveness:
“Now is our best chance for bipartisan, comprehensive tax reform that encourages job creation and helps bring down the deficit. The American people deserve a tax code that helps small businesses spend less time filling out complicated forms, and more time expanding and hiring … a tax code that lowers incentives to move jobs overseas, and lowers tax rates for businesses and manufacturers that create jobs right here in America.”
That echoed Obama’s earlier admissions, at least rhetorically. In 2011, he sought “to lower the corporate tax rate for the first time in 25 years,” and in 2012 he recognized that “companies that choose to stay in America get hit with one of the highest tax rates in the world.”
For his part, Senator Rubio displayed the wisdom that explains his mercurial rise among conservatives, highlighting in his address that, “We should lower our corporate tax rate, which is one of the highest in the world, so that companies will start bringing their money and their jobs back here from overseas.”
Even liberal Treasury Secretary nominee Jack Lew admitted during confirmation hearings this week that our corporate rate must be lowered. “I very much agree,” he said, “that business tax reform where we broaden the base and lower the rate would be very important to getting our economy moving again.” Later, he added, “I think a reformed tax system with a lower rate and that encourages investment in the United States and creates jobs in the United States would be good for American workers.”
Mr. Lew remains unqualified and unacceptable for the role of Treasury Secretary for a number of reasons, and in other portions of his testimony had to be corrected by Senator Rob Portman (R – Ohio). At one point Lew stated that any reform must bring in more revenue to feed out-of-control federal spending, and suggested that although America’s official tax rate is too high, the actual effective rate is “much lower.” Senator Portman helpfully instructed him that even the U.S. effective rate far exceeds the industrialized world average.
We must also beware Lew’s other caveat above. Liberals will attempt to exploit corporate tax reform as a source of new revenue for the federal government. Our budgetary problem, however, is not insufficient revenues but extravagant spending, as illustrated by the fact that if we simply returned to 2005 spending levels we would have enjoyed a $100 billion surplus last year.
Moreover, corporate taxes accounted for just 7.9% of total incoming federal revenues for the latest year available. Accordingly, they are no elixir for the federal deficit in any case. As things stand, however, they currently constitute a headwind against employment and economic growth.
Given the fleeting nature of this bipartisan consensus, the time for corporate tax reform and reduction is now.
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