We need a lower corporate tax rate

By Elaine Kamarck and James P. Pinkerton
April 4, 2012

The United States is used to being a world leader, but this time, it’s bad news for American jobs and growth: As of Apr. 1, we now have the highest corporate tax rate of all the industrialized nations in the world.

Japan has officially reduced its combined corporate tax rate from 39.5 percent to 38.01 percent, leaving the U.S. in the dubious position of being number one in anti-competitiveness with a current combined rate of 39.2 percent. That’s right: Our combined corporate tax rate, and federal rate at 35 percent, leaves us in a weaker position relative to other leading economies. That’s the bad news. The good news is that there is a sensible solution to lowering it and many signs that, in a surprising turn of events, the political will to achieve it exists in both parties.

In February, Treasury Secretary Timothy Geithner announced the outlines of a plan to reduce the U.S. corporate tax rate from 35 percent to 28 percent. Meanwhile, House Republican leaders have united around an even lower rate of 25 percent – the worldwide average tax rate among Organization for Economic Cooperation and Development (OECD) countries.

So now the negotiations begin – even during an election year. A rate more in line with the OECD average coupled with the elimination of special interest tax credits and deductions has broad support among policymakers and in the business community. When President Ronald Reagan and congressional Democrats took this approach in the 1980s, it set off a period of record economic growth that produced millions of new jobs and laid the foundation for a period of prosperity that lasted two decades.

It also proved to be a model for the world, much of which followed suit. Over the last 20 years, America’s competitors have lowered their top corporate rates to levels as low as 12.5 percent and 8.5 percent in the cases of Ireland and Switzerland, while the U.S. has not. This has significantly affected America’s ability to compete in an increasingly interconnected global economy. Reforming the tax code presents an opportunity to level the playing field and have every U.S. corporation pay the same, competitive rate. By doing so, we create a fairer, more streamlined code with a broadened base that makes the United States an attractive place to do business.

The Information Technology and Innovation Foundation described the problem last July, saying: “The United States is at risk of losing its global competitive advantage and with it faster per-capita income growth. To effectively respond, the nation must take concerted and strategic actions in a host of areas, including reform of the corporate tax code to transform it into a more effective tool to support private sector efforts to innovate and be more productive.”

Simply put, the nation is in great danger of losing a key component of its competitive edge now that the U.S. has the highest corporate tax rate among industrialized nations. U.S. companies also understand the urgency for the United States to have a competitive tax rate and have begun working for reform: “Being taxed at higher effective tax rates means we have less money available to make capital improvements, invest in innovation and stay competitive, create new jobs, offer higher compensation and better benefits to our employees and offer lower prices to our customers, and [it] makes us less attractive to investors in the capital market,” said Brad Mays, senior vice-president for tax at Macy’s Inc.

The current economic recovery is the most anemic in the postwar period. And a dramatic solution is needed. The time has come for both parties to implement corporate tax reform, spur investment and create more jobs in this country.

PHOTO: The reflected image of the dome of the Capitol in Washington, February 17, 2012. REUTERS/Kevin Lamarque

13 comments

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The USA individual tax rate on wage earners is also among the highest, if you factor out the lie that the wage earner Supplemental Income Tax (aka “FICA” taxes) are really “Insurance Premiums”. If you adjust for social benefits actually paid, the US is the highest, if you believe Republican proposals for both pension and health care.

Dead foreign civilians is not a “health benefit” nor do aircraft carriers feed old people. The that is what our “Insurance Contributions” buy, and have bought, for over 30 years.

Also, individual arrogation of corporate assets by managers needs to be very strongly discouraged. Frankly, it is American management, not taxes, that make companies unwilling to open anything other than sales and/or political lobbying shops in this country.

Posted by txgadfly | Report as abusive

This, of course, is why Steve Jobs spent so much time decrying the high corporate tax rate. Think of what Steve could have done if corporate taxes were lower.

The simple fact is that all of our “free market” managers hope to get their rewards from Washington and not by innovation.

Posted by MPLSLW | Report as abusive

What we really need is for you to do a story on what US corporations actually pay in taxes verses what those in other developed nations pay. Reuters, please don’t emulate Fox!

Posted by sfsob | Report as abusive

In 1998, Microsoft received a $3 million tax rebate. In addition, corporate welfare is rife in the States as well as in other countries (free factories, free training, free infrastructure, big local tax breaks, etc.). In addition, there are stupendous numbers of tax havens and legal tax dodges, as well as the inevitable illegal ones. I really hate hearing the wealthy and privileged bellyache about taxes they don’t pay while those of us who actually work for a living put our tax dollars in the pockets of the bellyachers! You amongst the 1% may fool yourselves, but you don’t fool us.

Posted by franabulax | Report as abusive

This would be fine if, and only if, they closed all the loopholes. This is unlikely to happen because 1) There are ALWAYS loopholes and 2) Republicans will still block a tax cut just because it isn’t THEIR tax cut.

Unfortunately, the idiots who sign the Americans for Tax Reform “promise” won’t, as the words “rationality” and “comprimise” are unknown to them.

Posted by RexMax46 | Report as abusive

Better taxes:

Individuals – If we taxed individual income at 8% and individual net wealth at 2% (over $15,000 and excluding retirement funds) we could replace all current federal revenue and eliminate regressive payroll taxes. Economic mobility would be created by keeping 92% of income and the concentration of assets would gradually diminish.

Business – An 8% corporate income tax and 4% and business value added tax (VAT) could bring in an extra 0.5 trillion (with rates lower than all major competitors).

Eugene Patrick Devany
http://www.TaxNetWealth.com

Posted by 248TaxPlan | Report as abusive

There are so many loopholes that many corporations like NBC, Exxon/Mobil pay little or NOTHING!
Please. . .you just want to bring your offshore funds into U.S. & cry to try to get a tax holiday like last time. It was given because the Corps said it would create jobs at home. It did NOT! Another lie. If you would pay your fair share our country would be doing much better. As if you care.

Posted by frisbeeredcat | Report as abusive

MPLSLW – “This, of course, is why Steve Jobs spent so much time decrying the high corporate tax rate. Think of what Steve could have done if corporate taxes were lower.”

Umm.. I dunno, add even more to his $90 billion in cash reserves? Taxes did not stifle Apple’s innovation nor did they force them to move their manufacturing operation to China. Steve Jobs spent so much time decrying the high corporate tax rate for one reason and one reason only. Greed.

Posted by 4ngry4merican | Report as abusive

Don’t bother telling us about the scheduled tax rate. It means nothing. My personal income tax rate, according to schedule, is 25% but deductions and credits reduce it to just under 8%. I assume that corporate lawyers and accountants do just as well, probably better, for their corporations. Tell us about the percentage actually paid.

Posted by tejh | Report as abusive

“When President Ronald Reagan and congressional Democrats took this approach in the 1980s, it set off a period of record economic growth that produced millions of new jobs and laid the foundation for a period of prosperity that lasted two decades.”

if this professed economic growth was so great, why did the deficit soar from less than $1T when Reagan took office to over $4T when bush1 left office? if that economy was so great the deficit to GDP ratio would have come down, not increasing from 32% to 67% during the same timeframe. fact is the huge tax breaks given to the wealthy and large corporations negated any economic growth. it was the huge deficit spending that artificially fueled that economy, finally self-correcting in the crash of ’87. we did the same thing in the bush2 years, and if the gop gains control again we will see the same thing for the third, and final time.

Posted by jcfl | Report as abusive

Frankly, we need a lower corporate tax rate like we need another hole in the head.

What we need is to bring US manufacturing jobs home again — no matter what that takes — and THEN we can talk about adjusting tax rates for corporations.

The really ugly truth is that giving US corporations more money at the taxpayers’ expense will only increase their capital investment overseas where they can get a better profit margin.

Posted by PseudoTurtle | Report as abusive

I just have two things to say (call it my 2 cents worth):

1) We may have the highest corporate tax rate, but we also have a national defense budget that is higher than all other countries combined. It only makes sense that we must have revenues to support this if we want to continue.

2) There is zero evidence that lowering or raising the tax rate on the top wage earners affects employment.

Posted by billteach7 | Report as abusive

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