Senator John McCain today added his voice to the growing chorus calling for a lower U.S. corporate income tax rate. The senator and presidential hopeful suggested that the rate be cut to 25% (from 35%) as part of a package that would help the slowing U.S. economy. He rightly states that cutting the corporate rate would “spur investment and innovation and make American business more competitive in the global marketplace.” After all, the U.S. suffers from having the world’s second-highest corporate 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. rate.
We suggested lowering the corporate tax rate as a form of economic stimulus late last week.
We applaud Senator McCain for his plan, as we did former-NYC Mayor Rudy Giuliani when he also called to lower the rate to 25%. Both Fred Thompson and Mitt Romney have called for cutting the corporate rate as well. We hope other candidates and politicians will see the importance of such a reform, as Treasury Secretary Henry Paulson and Democratic Congressman Charlie Rangel of New York have.
It may be, however, that Senator McCain’s plan, like the others, does not lower the rate far enough to a make a major impact on the U.S.’s global standing. When you add in state-level corporate income taxes, which on average add 4.3% more, a cut in the federal rate to 25% would still put the total rate higher than 29%. This would move the U.S. to a better ranking but one that is still above the average rate.
Cutting the federal rate to 20% would put the U.S. in a much stronger position. This is important both in the short-term and the long run. Because so many other countries are cutting their corporate tax rates (Germany is the most recent), policymakers should make certain that a rate cut that makes us more competitive today will leave us more competitive tomorrow. That is to say – any corporate rate cut needs to factor in the global march toward lower corporate tax rates.
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