The White House's Global Tax Gaffe
On Sunday, Japan’s corporate tax reform kicks in and the United States will have the highest corporate tax rate in the world. Including average state taxes the corporate tax rate in the United States reaches an astounding 39.2 percent, much higher than the OECD international average marginal tax rate of 25.5 percent.
Obama’s own former Council of Economic Advisers chairman, Austan Goolsbee, documented firm sensitivity to taxation. Goolsbee’s paper, published at the University of Chicago, highlighted increased deadweight loss as a significant adverse consequence of corporate taxation. Simply put, taxes create inefficiencies while giving governments more money to spend.
Businesses, like individuals, change behavior relative to stifling tax policy. Grant Thornton’s 2010 international business report cited a number of tax issues that drive businesses away—business profit tax was considered the largest burden followed closely by payroll taxes. In the same report, respondents listed Hong Kong as the least burdensome country for business taxation. Hong Kong has a corporate tax rate of 16.5 percent; the United States has a corporate tax rate that is 24 percentage points higher. How long can America maintain a comparative advantage while having the highest corporate tax rate in the developed world?
With the highest rates in the world, businesses are given a perverse incentive to invest their money overseas rather than bring it home. Under current policy, businesses are double taxed if they bring their earnings home paying both foreign taxes and the difference between the U.S. rate and the foreign rate. The higher our corporate tax rate, the less likely businesses are to create new jobs here or bring investments back to the United States. It’s a lose-lose for Americans.
The White House hasn’t seriously addressed the problems if the United States has the highest corporate rate in the world, other than sending Joe Biden across the country to tout an untenable global minimum tax rate. Remember how well that turned out after Biden’s summer recovery tour.