America’s Uncompetitive Corporate Tax System

January 3, 2006

We’ve posted a new Tax Foundation commentary to our website this morning. The subject? How the U.S.’s top corporate income tax rate—now highest among OECD countries—threatens to disadvantage U.S. companies and their ability to attract new capital investment. Here’s an excerpt:

Americans like to be number one. We boast the most Olympic medals, the mightiest military, and the most powerful economy in the world. But there’s one area where being number one isn’t something to be proud of: America’s high corporate taxes.

In recent years, while countries from Ireland to Estonia have been cutting corporate taxes to attract new jobs and investment, the U.S. has fallen drastically behind the wave of corporate tax reform.

Today, the combined U.S. corporate tax rate stands at 39.3 percent. That means America now has the highest statutory corporate income tax rate in the world—even higher than socialist Sweden and welfare-states Germany and France…

One of the ironies of the Bush presidency is that five years of tax-cutting have left the federal corporate income tax rate unchanged. The reason? It’s hard enough to overcome “tax cuts for the rich” rhetoric when individual income taxes are cut. Imagine the political opposition to corporate tax cuts.

However, the rest of the world (and, in particular, Europe) is apparently more enlightened when it comes to corporate tax reform. According to the Organization for Economic Cooperation and Development (OECD), the average OECD nation has reduced its corporate income tax rate by 13 percent since 2000. In contrast, neither the federal government nor any state government has cut is corporate income tax rate since 2000.

Other countries are cutting corporate tax rates because they’ve learned the importance of having a competitive tax climate. Nations won’t attract new business and job creation if their corporate income taxes are significantly higher than comparable nations.

This is especially true in Europe, where new EU members have slashed corporate tax rates to compete for investment with high-tax countries like France and Germany… (Full piece here.)

The commentary is based on our recent Special Report, “The U.S. Corporate Income Tax System: Once a World Leader, Now A Millstone Around the Neck of American Business.”

Here’s one provocative table from page 2 of the study:

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