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Progressive Policy Institute Calls for Cutting Corporate Tax Rates

2 min readBy: Scott Greenberg

In today’s New York Times, Michael Mandel of the Progressive Policy Institute writes about the ongoing international efforts to stop multinational corporations from evading taxes. In his column, he speculates that the G20’s Base Erosion and Profit ShiftingProfit shifting is when multinational companies reduce their tax burden by moving the location of their profits from high-tax countries to low-tax jurisdictions and tax havens. project might cause American jobs to move overseas:

The project also changes the international 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. rules by forcing companies to pay corporate taxes according to the location of the economic activity and value creation generating their profits… Remember that most European countries already have substantially lower corporate tax rates than the United States does… Under the new rules, such companies will have to locate many of their top workers – managers, R&D scientists, innovation specialists – in Britain, France, or the Netherlands in order to gain the lower rates.

Mandel’s logic makes sense. Right now, companies can take advantage of lower tax rates in Europe by relocating their legal location through an inversion. But, if new international tax rules force companies to actually move jobs overseas to take advantage of Europe’s lower tax rates, companies would likely shift jobs away from the U.S. as well.

Near the end of the column, Mandel offers a policy proposal to prevent impending job losses:

However, the Obama administration and Congress can still stem the tide, if Washington is willing to act quickly. Cutting the federal corporate tax rate, now 35 percent, down to internationally competitive levels is important to dissuading companies from wanting to move in the first place… [I]n a global economy, the United States can’t keep its corporate rates so much higher than the rest of the world without suffering the consequences.

As we’ve frequently pointed out, the United States’s high corporate tax rate puts American businesses at a competitive disadvantage. Whether or not the Base Erosion and Profit Shifting project moves forward, creating a better tax climate for American companies should continue to be a policy priority.

(This summer’s Tax Foundation Forum focuses broadly on the issue of international profit shifting and how to understand the tax planning of multinational corporations.)