America’s Corporate Tax Uncompetitiveness
On Thursday, we growled about America’s declining economic freedom. Today’s we write about America’s corporate tax competitiveness, as noted in a Tax & Budget Bulletin (No. 65, September 2012, requires Adobe) from the Cato Institute. It was written by Duanjie Chen and Jack Mintz of the School of Public Policy, University of Calgary.
Here are both the introduction and conclusion:
“Corporate income tax reform is receiving serious consideration in Washington. The Obama administration has suggested reducing the federal corporate tax rate from 35 percent to 28 percent while broadening the tax base. Presidential candidate Mitt Romney has said that he would cut the corporate tax rate to 25 percent if elected.
“The urgency of tax reform increased when Japan recently enacted a reduction to its corporate tax rate. That left the United States in the uncompetitive position of having the highest statutory tax rate in the world, with a combined federal-state rate of about 40 percent.
“This bulletin presents new estimates of marginal effective tax rates (METRs) on corporate investment for 90 countries. These tax rates take into account statutory rates plus tax-base items that affect taxes paid on new investment, such as deductions for capital depreciation, inventory costs, and interest expenses. We ignore temporary incentives because they do not support sustained capital investment, but instead shift investment from the future to the present year.
“We find that the U.S. effective tax rate on new corporate investment is 35.6 percent in 2012, which is almost twice the average rate for the 90 countries studied, and it is also the highest rate among the major industrial nations. These results underscore the need for U.S. policymakers to tackle corporate tax reform.”
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“Growing numbers of tax experts and policymakers recognize that the U.S. corporate tax system is a major barrier to economic growth. The aim of corporate tax reforms should be to create a system that has a competitive rate and is neutral between different business activities.
“At the federal level, policymakers should focus on reducing the statutory rate by 10 percentage points or more and ending preferences to create a more neutral tax base. Such reforms would help spur economic growth and likely lose the government little, if any, revenue over the long run. At the state level, policymakers should make similar corporate income tax changes while reforming other taxes that can fall on capital investment such as retail sales taxes.”
That's the short version, obviously. Read the entire paper; it's only four pages, including several helpful graphics. You'll surely come away with an understanding of why corporate tax reform is essential to enhancing America's global competitiveness.
Congress and the President need to start worrying about growing America’s economy rather than growing government. Why can’t they get that through their heads?