Today, for the first time in ten years, the U.S. House of Representatives has voted to repeal the federal estate tax. The final vote on HR 1105 was 240-179, with 233 Republicans and 7 Democrats voting yea. The bill was...
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U.K. Strives to have "Most Competitive Tax System Among G20"
There are two ways to respond to a wake-up call. You can deny it and put your head in the sand, or you can acknowledge the problem and address it with positive reforms. When it came to responding to an exodus of companies moving their headquarters offshore for better tax climates, U.S. lawmakers did the former, while British lawmakers did the later.
After a number of U.S. firms reincorporated offshore during the 1990s and early 2000s, U.S. lawmakers chose not to address the underlying causes of these defections—our high tax rates and the world—wide tax system. Instead, they enacted legislation that effectively made it illegal for companies to move offshore. Today, U.S. firms may not be moving their headquarters offshore, they are either getting purchased by foreign companies (see Anheuser Busch) or they are simply choosing to leave their profits abroad—at least $1 trillion by some estimates.
By contrast, after more than a dozen high-profile firms moved out of Great Britain to countries such as Ireland, the Netherlands, or Switzerland, British lawmakers took action to cut the corporate rate and move toward a territorial tax system which will allow companies to bring their profits home without an additional surcharge.
Following last week's release of the British government's budget plan for 2011, a number of ex-patriot U.K. companies announced that they may consider returning to the country. According to the European edition of the Wall Street Journal, the advertising company WPP PLC and the media group United Business Media Ltd. say they are considering a move home.
Chancellor George Osborne's 2011 budget accelerates the reforms launch last year with the goal to "create the most competitive tax system in the G20" and "to make the UK the best place in Europe to start, finance and grow a business."
For corporations, the budget will:
Cut the top corporate tax rate from 28 percent to 26 percent on April 1, a full percentage point more than was scheduled to occur. By 2014, the rate will fall to 23 percent, one percentage point more than was originally planned.
Change the Controlled Foreign Company (CFC) rules in 2012 "towards a more territorial corporate tax system that reflects the global reality of modern business. The interim improvements are designed to make the current CFC rules easier to operate and, where possible, to increase competitiveness."
Unless the U.S. follows suite by 2014, our federal statutory corporate tax rate will be 12 percentage points higher than the British corporate tax rate, while our overall rate (including the average state rate) will be nearly 17 percentage points higher. While Ireland is often thought to be the number one choice for U.S. investment dollars, IRS statistics indicate that U.S. companies earn more income in Great Britain than in any other country ($138 billion in 2007).
Canada comes in a distant second with $52 billion in gross income. Canada already cut its federal corporate tax rate from 18 percent to 16.5 percent on January 1st of this year and is scheduled to cut it to 15 percent next year. And, Canada effectively has a territorial tax system with most treaty countries.
While many lawmakers and the press (see 60 Minutes) believe the biggest tax threats to America are Ireland, Switzerland and the so-called tax havens, the real threat is from our two biggest trading partners who already have dramatically more competitive corporate tax systems than the U.S.—and are striving to get even better.
 Steve McGrath, "WPP, publisher may end tax exile," The Wall Street Journal, March 25-27, 2011.
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