India’s finance minister this week released a budget that includes, among other things, a five per cent reduction in 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. . Narendra Modi, the Prime Minister of India, won a landslide election last May on a pro-growth agenda.
The proposed budget would move India, one of the world’s largest economies, from a 30 per cent base rate to 25 per cent. (There are some surcharges that push the rate a few points higher by some measurements, including the ones we use at 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. Foundation. We measured the rate at 34% in our last report.)
While Indian tax news is not directly relevant to U.S. policy, it’s important to remember that this fits into a broader picture: the rest of the world has built a sort of consensus that corporate income is a poor 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. , and corporate income tax rates around the world have been steadily falling.
I expect this trend to continue with time. There’s nothing wrong with taxing income people earn from investments in corporations. But there’s a right way and a wrong way to do it. The 401(k) structure, for example, taxes investment income in a fair and elegant way. The corporate tax doesn’t. And that’s why it is in a long, steady decline throughout the world.
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