Inversions have been in the news consistently this summer as multiple companies have looked for legal paths away from the U.S. corporate tax system. Burger King became the latest corporation to add to the list after they...
- U.S. Corporate Tax Rate Soon to Be #1
U.S. Corporate Tax Rate Soon to Be #1
American Businesses Falling Behind while Policy Stands Still
Washington, DC, March 11, 2011-The U.S. corporate tax rate will soon become the highest in the industrialized world, and is already in its 20th year of being above the average for similar economies, according to a new analysis by the Tax Foundation. As other nations enact reforms and rate cuts, the U.S. corporate rate will continue to stand out as a hindrance to economic growth and competitiveness unless lawmakers move to lower the tax burden for businesses.
The combined federal and state rate of 39.2 percent of corporate profits is exceeded only by Japan, whose rate stands at 39.5 percent. When Japan enacts planned cuts next month, however, the United States will have the highest rate of all of the economies in the Organization for Economic Cooperation and Development (OECD), the group of 34 advanced countries with economies most comparable to the U.S.
"Of course, OECD nations have not been the only countries reducing their corporate tax rates to remain competitive," said Tax Foundation president and study author Scott A. Hodge. "Since 2006, some 75 nations have cut their rates, many multiple times."
While many lower-tax nations have achieved their enviable business environments by lowering their rates in recent years, the U.S. is poised to achieve the dubious honor of being the highest-taxed through a lack of action. Between 2000 and 2010, nine countries cut their corporate tax rates by double-digit figures: Germany, Canada, Greece, Turkey, Poland, the Slovak Republic, Iceland, and Ireland. All nine fell considerably in the OECD rankings of high-tax countries.
For the U.S. to move to the OECD average and match China (which significantly lowered its rate in 2008), lawmakers will have to reduce the federal rate to 20 percent. By all accounts, such a rate reduction could not be achieved within the revenue-neutral restrictions of broadening the corporate tax base alone. The scope of corporate tax reform so far endorsed by the White House, for example, would fall far short of this goal.
"United States companies are now in the position of trying to compete in the 21st century world economy with a 20th century tax system," said Hodge. "Dozens of countries around the world—including many of the United States' closest trading partners—have realized that sky-high corporate tax rates are an economic dead end. Now more than ever, Americans want to see policies that will help create increased growth, more jobs, and higher standards of living - exactly the things that a lower and more streamlined corporate tax system can help achieve."
Tax Foundation Fiscal Fact No. 261, "Countdown to #1: 2011 Marks 20th Year That U.S. Corporate Tax Rate Is Higher than OECD Average," is available here.
- The United States’ worldwide system of corporate taxation requires multinational corporations to pay taxes twice, first to the foreign country in which they do business and...
Join the Tax Foundation's fight for sound tax policy Go
Tax Policy Blog
The official weblog of the Tax Foundation.
Tax By State
For information on your state, select it from the drop-down menu.
Ask a Tax Expert
Contact information for Tax Foundation policy staff Ask