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U.S. Soon Could Be Number 1 in Corporate Taxes

1 min readBy: Scott Hodge

It is well known that the U.S. has 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. among the major industrialized countries at more than 39 percent when the federal and average state rates are combined. Only Japan has a higher overall rate at nearly 40 percent.

That soon could change. Reuters is reporting that Japan's ruling Democratic Party will include a corporate rate cut in its platform for the upcoming upper house elections.

According to Reuters, "New Prime Minister Naoto Kan is expected to announce next week the party's pledges, which will also include steps such as consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. reforms…The 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. cut will be the key pillar of the party's growth strategy but the Democrats are not expected to state the exact figure of the planned reduction."

Should Japan cut its corporate income tax rate, the U.S. would find itself with the highest corporate tax rate in the industrialized world. The U.S. would also stand alone as one of the last remaining OECD nations to impose a world-wide tax system on corporate profits. Last year, both Japan and the United Kingdom took steps to exempt foreign earned profits from domestic taxation in order to stem the flight of capital out of their respective nations.