The U.S. corporate tax rate has become the highest in the industrialized world, and it is already in its 20th year of being above the average for similar economies, according to a new analysis by the Tax Foundation.
As other nations enact reforms and rate cuts, the U.S. corporate rate will continue to stand out as a hindrance to economic growth and competitiveness unless lawmakers move to lower the tax burden for businesses.
The combined average federal and state rate of 39.2 percent of corporate profits had been exceeded only by that of Japan, which stood at 39.5 percent until Japan’s government cut the nation’s corporate tax rate to 35 percent in April. Japan’s recent corporate tax cut gives the United States the highest rate of all of the economies in the Organization for Economic Cooperation and Development (OECD), the group of 34 advanced countries with economies most comparable to that of the United States.
“Of course, OECD nations have not been the only countries reducing their corporate tax rates to remain competitive,” said Tax Foundation president and study author Scott A. Hodge. “Since 2006, some 75 nations have cut their rates, many multiple times.”
Tax Cuts Elsewhere
While many lower-tax nations have achieved their enviable business environments by lowering their corporate tax rates in recent years, the United States has achieved the dubious honor of being the highest-taxed through a lack of action. Between 2000 and 2010, nine countries cut their corporate tax rates by double-digit percentage points: Germany, Canada, Greece, Turkey, Poland, the Slovak Republic, the Czech Republic, Iceland, and Ireland. All nine improved their standing considerably in the OECD rankings of tax regimes.
For the United States to move to the OECD average and match China (which significantly lowered its rate in 2008), lawmakers will have to reduce the federal rate to 20 percent. By all accounts, however, such a rate reduction could not be achieved within revenue-neutral restrictions. The scope of corporate tax reform so far endorsed by the White House, for example, would fall far short of this goal.
’20th Century Tax’
“U.S. companies are now in the position of trying to compete in the 21st century world economy with a 20th century tax system,” said Hodge. “Dozens of countries around the world—including many of the United States’ closest trading partners—have realized that sky-high corporate tax rates are an economic dead end. Now more than ever, Americans want to see policies that will help create increased growth, more jobs, and higher standards of living—exactly the things that a lower and more streamlined corporate tax system can help achieve.”
Richard Morrison ([email protected]) is manager of communications at the Tax Foundation in Washington, DC.
Fiscal Fact No. 261, “Countdown to #1: 2011 Marks 20th Year That U.S. Corporate Tax Rate Is Higher than OECD Average,” the Tax Foundation: