No Joke. U.K. Cuts Corporate Tax Rate, U.S. Falls Further Beyond

April 01, 2011

In another sign that the U.S. tax system is falling further behind the rest of the world, today, April 1, 2011, Great Britain lowers its corporate tax rate from 28 percent to 26 percent as a first step toward the goal of having a 23 percent rate in 2014. The new rate gives the U.K. a nine percentage point edge over the U.S. federal rate and is thirteen points lower than the overall U.S. rate of roughly 39 percent.

American businesses report more foreign earnings in Great Britain than any other country - roughly $150 billion in gross sales in 2007, according to the IRS. The lower rate will surely incentivize U.S. firms to keep those profits working in the U.K. rather than bring them home.

On January 1st of this year, Canada lowered its federal corporate tax rate from 18 percent to 16.5 percent. Next year the rate will fall to 15 percent. The overall Canadian rate - including the average provincial rate - is heading toward 25 percent, ten percentage points below the U.S. rate. No doubt many U.S. firms are wondering what it would take to become a Canadian company.

As is well known, Japan was scheduled to cut its overall corporate rate by 5 percent until the tragic earthquake derailed their economy. This would have left the U.S. with the highest overall corporate tax rate in the industrialized world.

All three of these countries have effectively moved toward a territorial or exemption form of taxing the foreign profits of their multination firms. The U.S. remains the only country with a world-wide system and a rate above 30 percent.

This is a case where American exceptionalism is a very bad thing.

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