Corporate Taxes in U.S. ‘Impeding Recovery’

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(Courtesy of NEWSMAX)

Corporate taxes in the United States are the second highest in the developed world and place American firms at a “substantial competitive disadvantage,” according to a new report from the Tax Foundation.

The statutory tax rate in the U.S. is 39.1 percent, exceeded only by Japan among the 34 member nations in the Organization for Economic Cooperation and Development (OECD).

Since 1997, 30 of the 34 nations have lowered their statutory rates, and the average corporate tax rate for OECD nations has dropped from 36.5 percent to the current 25.1 percent, according to the Tax Foundation. The U.S. has not lowered its rate during that period.

But the effective tax rate is lower than the statutory rate due to deductions, credits, and other tax preferences. Here again, America’s rate is second highest only to Japan. Results of 13 studies show that the effective U.S. rate is about 27 percent, compared to the OECD average of about 20 percent.

“Corporate taxes reduce the real rate of return on corporate investments,” the Foundation observes. “In today’s world, capital is highly mobile and flows toward investments with the highest rates of return.

“While the U.S. government is unable to take action to increase Chinese labor wages in order to level the playing field, it is entirely capable of reducing tax impediments for U.S. enterprises to be more competitive in international markets.”

An effective corporate tax rate that is seven to eight points higher than the world average “represents a substantial competitive disadvantage for U.S. firms selling in international markets,” the Foundation states.

“Investment that is shifted abroad boosts productivity and spurs job creation in foreign economies rather than the U.S.; the high U.S. effective corporate tax rate is actively impeding current efforts at recovery.”

The report concludes: “These findings should alarm U.S. policymakers and provoke action.”

Another factor to consider: High corporate taxes that discourage foreigners from investing in the U.S. reduce demand for American workers, points out Laurence J. Kotlikoff, professor of economics at Boston University and a research associate of the National Bureau of Economic Research. As a result, American workers’ wages are lower than they would be with lower corporate taxes.

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