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Low Corporate Tax Rates: A Win-Win For Everyone

2 min readBy: Scott Hodge

This op-ed appeared in Investor’s Business Daily on February 17, 2011.

Polls show that the top three issues on the minds of Americans today are jobs, the economy and the deficit.

Yet our ability to create jobs, boost the economy and, ultimately, cut the deficit is being undermined by the fact that the U.S. imposes the second highest corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate of any industrialized country at nearly 40% (combining the federal and state rates).

To make matters worse, Japan—which holds the top spot in corporate taxation—will be cutting its rate as of April 1, bestowing the U.S. with the undignified rank of No. 1 corporate taxer in the world.

In taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. terms, the U.S. is a Hummer when the market is demanding Hondas.

While we have stood still, nearly 60 countries have cut their corporate taxes over the past four years as a means of luring jobs and investment from high-tax nations like the U.S.

The obvious solution is to cut our corporate tax rate and make the U.S. a more attractive place to do business in and do business from.

We should be doing everything possible to roll out the welcome mat to companies—foreign and domestic—who want to invest here and create jobs.

The good news is that President Obama seems open to addressing America’s high corporate tax rate.

The bad news is that many lawmakers in Washington are suspicious of all businesses and believe that foreign-owned firms use tax “loopholes” to rob the Treasury of revenues in the same manner that domestic companies use tax “loopholes” to ship jobs overseas.

Under the guise of reducing tax avoidance, Rep. Lloyd Doggett, D-Texas, has introduced two bills that would make America more unwelcome to foreign investment and possibly put U.S. firms at risk to retaliation by other nations.

The bills—H.R. 62, the International Tax Competitiveness Act of 2011, and its companion, H.R. 64—would dramatically change the way foreign-owned companies are taxed in the U.S.

The main way that Doggett’s legislation would do this is by changing how our tax code treats foreign-owned firms for tax purposes. The bill would treat foreign firms as if they were “domestic” corporations if they locate any major global operations or top level executives in the U.S.

Why should being designated a U.S. firm matter? Because the U.S. corporate tax system taxes American corporations on their worldwide income, while it taxes foreign-owned companies on the profits they earn in the U.S.