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U.S. May Soon be Number 1 as Japan Looks to Cut Corporate Taxes

1 min readBy: Scott Hodge

Bloomberg is reporting that the U.S.’s status as the country with the second-highest overall 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 among industrialized nations could be coming to an end as the Japanese government has announced that it will consider cutting its top-ranked corporate tax in order to attract foreign investment and spur economic growth.

While the OECD average corporate tax rate is 27.6 percent, Japan’s combined federal and regional corporate tax rate is 39.5 percent, slightly above the combined U.S. rate of 39.3 percent. Both countries are looking more and more as outliers as 27 countries cut their corporate taxes last year — including the U.K., Germany, China, and Spain — while Korea, Taiwan, and Hong Kong have announced plans to cut their corporate taxes this year.

Bloomberg cites a new study by the Dai-Ichi Life Research Institute, which estimates that a “5 percentage-point cut in Japan’s corporate taxes would increase foreign direct investment by 12.7 percent in a year and add about 3.8 trillion yen to the economy over six years.”

The government will consider broadening the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. as one means of financing the rate cuts since only a third of Japanese companies actually pay corporate taxes.