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U.S. Now Has Dubious Distinction of Highest Corporate Income Tax Rate in the Industrialized World


Dec 16, 2010

Washington
- As the House of Representatives moves today to prevent a massive job-killing tax hike on small businesses and families, other nations are moving to aggressively reduce the cost of doing business within their own borders by cutting the corporate income tax rate.  In fact, just this past week, Japan announced that it would cut its corporate income tax rate by five percent – giving the United States the dubious distinction of having the highest corporate income tax rate in the industrialized world.  

As the New York Times noted, the move is a pro-growth measure that will spur job-creation:
Lowering the corporate tax burden by 5 percentage points could increase Japan’s gross domestic product by 2.6 percentage points, or 14.4 trillion yen ($172 billion), over the next three years, according to estimates by Japan’s Trade Ministry....Japanese companies have amassed unprecedented amounts of cash since the lean years of the 1990s, but have not reinvested the funds to expand domestically or increase employment or payrolls.  A tax cut could whet companies’ investment appetite, the government hopes.

The following chart, courtesy of Cato@Liberty, illustrates just how far the United States is falling behind the rest of the industrialized world:

http://republicanleader.house.gov/UploadedFiles/12-16-10.jpg

The Cato Institute’s Dan Mitchell noted that:
The U.S. corporate tax rate of nearly 40 percent (including state corporate burdens) already is far too high, particularly since America adds to the competitive disadvantage of U.S.-domiciled firms by being one of the few nations to impose an extra layer of tax on foreign-source income. Japan’s proposed rate reduction, however, means the high tax rate in America will be an even bigger hindrance to job creation.  It’s also worth noting that the average corporate tax rate in Europe has now dropped to less than 24 percent, so even welfare states have figured out that a high tax burden on business doesn’t make sense in a competitive global economy.

And the Heritage Foundation adds: “Of the 30 countries in the OECD, 27 of them have cut their corporate income tax rates since 2000.  By standing still, the United States has fallen behind.”  Even our neighbor to the north, Canada, has gotten the message: “Beginning in 2001 under a Liberal government, even the politically sensitive federal corporate income tax rate has been reduced.  It is now 18%, down from 28%, and the plan is to reduce it to 15% in 2012.”  

President Kennedy once said that “an economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs.”  If Japan, Canada and the rest of the industrialized world can enact pro-growth tax policies that will create jobs, maybe the United States can too.  

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