Posted on 08/31/2014 2:59:41 PM PDT by Kaslin
It boggles the mind to think that the United States now has the highest corporate tax rate in the industrialized world.
But it’s even more amazing that America arguably has the most punitive corporate tax rate in the entire world.
Here’s some of what I wrote on the topic for today’s U.K.-based Telegraph.
…the United States has the highest corporate tax rate in the developed world (and the highest in the entire world, according to KPMG, if you ignore the United Arab Emirates’ severance tax on oil companies). …The central government in Washington imposes a 35pc rate on corporate income, with most states then adding their own levies, with the net result being an average corporate rate of 39.1pc. This compares with 37pc in Japan, which has the dubious honour of being in second place, according to the tax database of the Organisation for Economic Co-operation and Development (OECD). …if you broaden the analysis, it becomes even more evident that the United States has fallen behind in the global shift to more competitive corporate tax systems. The average corporate tax for OECD nations has dropped to 24.8pc. For EU nations, the average corporate tax is even lower, with a rate of less than 22pc. And don’t forget the Asian Tiger economies, with Singapore, Taiwan and Hong Kong all clustered around 17pc, as well as the fiscal paradises that don’t impose any corporate income tax, such as Bermuda and the Cayman Islands.
I also explain that America’s system of “worldwide” taxation exacerbates the anti-competitive nature of the U.S. tax system for companies trying to compete in global markets.
And I warn why making “inversions” illegal is a misguided and self-defeating response.
Blocking inversions…is like breaking the thermometer because you don’t like the temperature. It simply masks the underlying problem. In the long run, the United States will lose jobs and investment because of bad corporate tax policy, regardless of whether companies have the right to invert.
In other words, America desperately needs a lower corporate tax rate.
The crowd in Washington, however, says American can’t “afford” a lower corporate tax rate. The amount of foregone revenue would be too large, they claim.
Yet let’s look at what happened when Canada lowered its corporate tax burden. Here’s a chart prepared by the Tax Foundation.
The Tax Foundation augmented the chart with some important commentary on why companies are attracted to Canada.
Part of the attraction is the substantial tax reforms that occurred over the last 15 years in Canada. First among these is the dramatic reduction in the corporate tax rate, from 43 percent in 2000 to 26 percent today.
What about tax revenue?
The U.S. currently has a corporate tax rate of 39 percent, but lawmakers are reluctant to do what Canada did, i.e. lower the tax rate, for fear of losing tax revenue. …According to OECD data, corporate tax revenue increased following Canada’s corporate tax rate cuts that began in 2000. …Corporate tax revenue as a share of GDP in Canada has averaged 3.3 percent since 2000, while it averaged 2.9 percent over the years 1988 to 2000, when Canada’s corporate tax rate was 43 percent.
My colleague Chris Edwards also reviewed this issue (and he’s a former Canadian, so pay close attention).
Here’s his chart showing the corporate tax rates imposed at the national level by both the U.S. government and the Canadian government.
As you can see, the rates were somewhat similar between 1985 and 2000, with the Canadians having a slight advantage. But then Canada opened up a big lead over America by dropping the central government tax rate on corporations to 15 percent.
So what happened to corporate tax revenue?
As you can see from his second chart, receipts are very volatile based on economic performance. But the Canadian government is collecting more revenue, measured as a share of total economic output, than the American government.
In spite of having a lower tax rate. Or perhaps it would be more accurate to say the Canadians are generating more corporate tax revenue because of the lower tax rate.
In other words, the Laffer Curve is alive and well.
Not that we should be surprised. Scholars at the American Enterprise Institute estimate that the revenue-maximizing corporate tax rate is about 25 percent, far below the 39.1 percent rate imposed on companies in the United States.
And Tax Foundation experts calculate that the revenue-maximizing rate even lower, down around 15 percent.
P.S. Don’t forget that when politicians impose high tax burdens on companies, the real victims are workers.
P.P.S. And since America’s corporate tax system ranks below even Zimbabwe, we’re in real trouble.
Maybe it’s time for significant tax reform. Maybe the flat tax Steve Forbes proposed in 1996 should be start?
well, I guess from todays posts we have a choice, a readers right to choose, in the euphemism of a Marxist.
option 1
“It boggles the mind to think that the United States now has the highest corporate tax rate in the industrialized world. “
option 2
“American corporations pay some of the lowest tax rates in the world”
Better luck waving a cross in front of a vampire and thus giving them religion.
We should lower tax rates to INCREASE revenue for the government?
If that’s the case, an argument could be made that Americans are safer with the way things are.
Tax reform would be a great issue for Republicans to champion since people and businesses both hate the tax code. So I guess there’s virtually no chance of this happening. LOL
The self-destructive GOP rarely misses an opportunity to fail the American people. They are stuck on stupid.
You make a good point. The government has an insatiable appetite for money. There’s never enough for them. Give them another dollar and they will spend $10 more.
I truly think taxes are less of a problem than internationalism. With effectively open borders to business, corporations and even individuals are going to abusively take advantage of things. And they do.
What Burger King, an American corporation, plans to do is to become a multinational corporation, with the purpose of avoiding taxes. Many Americans can appreciate this, having no love of high taxes.
However, many corporations are doing things Americans do not like, because of their multinational status *combined* with access to US markets. Things such as outsourcing, having their products made in foreign sweatshops by children, etc.
So Americans get punished not just by their denying our spendthrift government money, but by denying Americans jobs, underselling American made goods, and actively lobbying our government to keep the gravy train running.
So how about a simple change of concept, away from internationalism?
If they want to sell their goods here, they must make their products or services with American labor, under American rules, and paying American wages and taxes.
That is in no way unfair. We aren’t forcing them to sell their goods here, so they can leave if they want. We just don’t want to be exploited by them.
And while many of them want US to pay higher taxes, let’s see how that attitude would change if they have to pay higher taxes as well.
My Enrolled Agent Conservative friend is a realist. This is my interpretation but the Oinker's (my term) on K-Street and the House and Senate love doling out the goodies in the code. As she said, Fair Tax never, In her humble Opinion a Flat Tax as an optional form to all your forms where you file a "X" percent with no deductions is the only way for a Flat Tax to gain traction.
So my Solution, an alternative form 15% Flat, Make Cap Gains 15% again equal to Div's and make Corp. Taxes 15% flat no b.s. but it may get sticky with depleation allowances and yes I haven't thought it through.
With everything @ " 15% " we set a new bar that everyone has to meet. IMHO Business would flock here faster than..... something about a tin horn :-)...
1. A generous exemption for earned income (wages and taxes) of:
$14,000 for single taxpayers
$28,000 for married/registered domestic partner couples
$21,000 for single head of household with legal dependants
$9,000 per legal dependent in household
2. All earned income above the exemption amounts will be taxed at a flat rate of 18.75%.
3. Eliminate all other tax loopholes, the alternate minimum tax, gift tax and the FICA tax.
4. Eliminate taxation on bank account interest, stock dividends and capital gains.
5. Tax corporate income at a flat rate of 13.75%.
The result is a 75% reduction in yearly compliance and economic opportunity costs due to the income tax. So instead of US$1 TRILLION per year in compliance and economic opportunity costs, we free up US$750 BILLION per year for more productive purposes.
Tax them, and if they don’t like it, tax their assets if they leave. And after they leave if they try to sell their product in America, import tariff it!
They make trillions while destroying the middle class, then they want to leave the country with their ill-gotten gains?
Tax them!
Yes!
If/when the government did want to institute something along the lines of a tax break such that we are beneath that of other countries, to really make an impact, mention the word “retroactively” going back a period of years. Watch and see what that does to our manufacturing base and capital inflows. Nah, I guess it’ll never happen as it makes too much sense.
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