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While U.S. Politicians Fiddle, America’s Competitiveness Declines

3 min readBy: Scott Hodge

While America’s political establishment has been self-absorbed on the Democrat and Republican primaries, the U.S. has again fallen behind in the global race for better business climates. Over the past six weeks, at least a half-dozen of our major economic competitors have taken steps to cut their 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. rates in order to boost their economies and save jobs.

Here’s a headline we would not see in the United States: ‘Corporate Tax Cut Key to Economic Recovery’. In an interview in the Korea Times, Choi Kyung-hwan, a member of the new Administration’s Presidential Transition Committee, said that “The 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. reduction is not a matter of choice, but a matter of life and death for Korea in an increasingly globalized business environment.”

In a refrain that is equally applicable to the U.S., Choi went on to say that “Hong Kong and Singapore, which impose significantly lower corporate taxes than Korea, have further slashed taxes recently to draw more foreign investors. Also, France currently levies 34.4 percent corporate income tax but plans to reduce the tax to as low as 20 percent. Unless Korea cuts corporate taxes, we will not be able to win over multinational firms,”

And to the question of whether or not corporate tax rate cuts are affordable, Choi said “Some worry that the tax cut will adversely affect government spending on social welfare-related programs. But it will give more money back to businesses and individuals, which will boost private consumption, business activity and job creation.”

As the new links below demonstrate, such rhetoric is not isolated to Korea and right-wing American think tanks. Governments along the political spectrum are realizing that lower corporate tax rates mean more jobs at higher pay and higher economic growth. Note to U.S. politicians – tick tock, tick tock, tick tock…

It’s nice, but it’s only a start
National Post, Canada – Jan 31, 2008
Get your new corporate tax cuts here! How low can they go? Probably lower still, since both parties give the impression of having their strings pulled by …

Spain’s Political Parties Aim to Sustain Jobs Boom
Wall Street Journal – Feb 27, 2008
The center-right Popular Party wants to cut corporate Spain’s tax bill so companies won’t cut jobs and will keep hiring as their activity slows. …

Hong Kong shares close sharply higher on US, Shanghai gains, tax – Feb 27, 2008
Corporate tax has been cut to 16.5 percent from 17.5 percent. The tax cuts are expected to increase disposable income and boost spending. …

Taiwan nearer to corporate tax cut
Financial Times, UK – Feb 20, 2008
… to lower the corporate tax rate from one of the highest in Asia to among the lowest, in order to boost the island’s competitiveness and economic growth. …

S. Africa cuts company tax, sees budget surpluses
Guardian Unlimited, UK – Feb 20, 2008
By Gordon Bell CAPE TOWN, Feb 20 (Reuters) – South Africa’s corporate tax rate will fall by one percentage point to 28 percent to help boost economic growth …

Making of a people-friendly budget
Hindu, India – Feb 24, 2008
Interestingly, the corporate world is also expecting a cut in corporate tax from the current 33.99 per cent to 30 per cent to align it with the Asia Pacific …