David Kirkpatrick

August 14, 2008

US corporate tax rate high compared to rivals

I found this Tax Foundation press release via AccountantsWorld. It covers how corporate taxes are falling internationally while the US rate remains unchanged and couches the argument this fact could hurt US economic growth in the future.

Certainly I’m no fan of taxes, but selected releases on studies like this are useless. I didn’t take the time to read the actual study so I’m not sure what it covers, but this release implies other countries are gaining economically on the US because their companies are paying less taxes than last year.

Quite a few economic factors are being left out of this simplistic formulation — little things such as what percentage of national tax revenue contributed by workers in the non-US countries and the corporate tax rates before the reduction.

This Tax Foundation release is food for thought best taken with a grain of salt I think.

The release:

New Study: U.S. Corporate Tax Rate 50% Higher Than Economic Competitors

OECD Study Shows 17th Consecutive Year of Corporate Tax Declining in Non-U.S. Countries While America Stands Still, now Second-Highest

WASHINGTON, Aug. 13 /PRNewswire-USNewswire/ — Tax Foundation President Scott Hodge this morning released the latest Tax Foundation “Fiscal Fact” in response to a new study from the Organisation for Economic Co-Operation and Development (OECD). The OECD study shows that for the 17th consecutive year, the average rate of corporate taxes in non-U.S. countries fell while the U.S. corporate tax rate stayed the same.

The new Tax Foundation study can be found at www.taxfoundation.org/publications/show/23470.html.

As a result of the U.S. failure to lower its corporate tax rate for more than two decades while other major trading nations lowered theirs, the U.S. corporate tax rate is now 50% higher than the OECD average. Nine key trading partners cut their rates during 2007.

“Continued failure by U.S. tax policymakers to keep up with our top global economic competitors means that we’re solidifying a trend that will result in our children and grandchildren not seeing the economic growth we’ve seen in our lifetimes,” noted Hodge. “There’s a real-wallet impact for Americans as we continue to sit idly by while other countries improve the way they do business, and we should be very concerned about jobs, capital, and investments moving from high-tax countries to low-tax countries.”

This comes on the heels of another recent OECD study showing that corporate taxes are the single most harmful tax to GDP growth, more so than personal income taxes or consumption taxes.

The combined federal and state corporate tax rate in the U.S. currently stands at 39.3% (the second-highest among industrialized countries), while the OECD average rate has fallen to 26.6%. Even China has recognized the significance of cutting the corporate tax to become more competitive, reducing their top standard corporate tax rate from 33% to 25% just this year.

Scott Hodge is president of the Tax Foundation, a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. He leads the foundation’s new CompeteUSAcampaign for business tax reform along with Robert Carroll, Ph.D., Vice President of Economic Policy at the foundation and recently Deputy Assistant Secretary for Tax Analysis at the Treasury Department.

Source: Tax Foundation

Web Site: www.taxfoundation.org/publications/show/23470.html

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