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U.S. Corporate Income Tax Rate Is a Foreign Policy Debate Issue


Posted by Ryan Ellis on Monday, October 22nd, 2012, 1:53 PM PERMALINK


The U.S. corporate income tax is the highest in the developed world.  When state corporate taxes are factored in, the U.S. has the highest corporate income tax rate in the world at 39.2 percent.  America not only has a higher rate than the developed nation (OECD) average; we have a higher rate than each of our chief trading competitors:

Country

Corporate Income Tax Rate

United States

39.2%

OECD Average

25%

Canada

27.6%

Mexico

30%

Japan

35%

Germany

30.2%

United Kingdom

26%

France

34.4%

 

 

Obama claims to be for corporate tax reform, but his plan is actually a net tax hike. His administration released a corporate tax reform plan in the spring, but he hadn’t said a word about it until the first debate.  It’s a net tax increase even while cutting the corporate rate slightly to just over 32 percent (including states).  It increases the cost of capital investment, raises taxes on corporate shareholders, and seeks to raise net taxes to pay for Obama-sized government.

The Obama tax hike plan’s rate isn’t competitive.  How does the plan’s 32 percent-plus rate compare to the rates of our biggest global trading partners? Our new 32.3 percent rate would only beat out France (34.4 percent) and Japan (35 percent). We would not be competitive with the OECD average 25 percent rate, nor with Canada (27.6 percent), the United Kingdom (26 percent), Mexico (30 percent), or Germany (30.2 percent). Rate reduction this inadequate makes the plan a lemon right from the start.

Obama’s plan “doubles down” on international double-taxation. The U.S. is one of the only countries left in the world which seeks to tax the worldwide income of her companies (on top of income taxes already paid overseas). The smart move would be toward a territorial system, where only U.S.-source income is taxed (as Obama's own jobs commission recommended). This could be transitioned into with a round of repatriation.

Rather than embracing this common-sense and globally-accepted idea, the Obama administration wants to make the double taxation worse by imposing a global minimum tax rate. They also want to take away several of the tax provisions in law today which make this international double-taxation regime bearable for many companies.

The Obama plan discriminates against family-owned businesses that compete abroad. The Obama plan broadens the tax base (read: eliminates exclusions, deductions, and credits) for everyone, but only cuts the tax rate for corporate employers. What about the 30 million sole proprietorships, partnerships, LLCs, and S-corporations that face taxation at the individual rates? Their tax rate goes up, from 35 percent today all the way to over 40 percent in 2012 (39.6 percent top rate plus a new 3.8 percent Medicare payroll/surtax).  As Paul Ryan has pointed out, these businesses compete internationally, too.  To raise their rates in the face of fierce competition is foolish.

Romney, unlike Obama, actually has a corporate tax reform plan.  Romney’s plan is actual tax reform: lower the rates, broaden the base, and don’t raise net taxes.  The Romney plan would immediately cut the federal corporate income tax rate to 25 percent, and pay for it by broadening the corporate tax base.

Even the Romney rate cut plan may not be enough.  Under the Romney plan, the integrated federal-state rate would still be about 29 percent, leaving our competitors losing out to Canada, the United Kingdom, and the OECD average.  In reality, "20 is the new 25." To have a truly globally-competitive corporate rate, you need to get the federal rate down to 20 percent or below.  That rate would beat the OECD average and every one of our major trading partners.

 

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