NCPA - National Center for Policy Analysis


July 19, 2007

In 1986, the United States moved from a country with above-average corporate tax rates to one with below-average rates.  The Reagan tax reforms set the stage for 20 years of remarkable economic performance in the United States and around the world, what Ronald Reagan called, "The American Miracle," says Treasury Secretary Henry Paulson.

Twenty years later, after much of the world has followed our lead, the United States is once again a high corporate tax country, says Paulson:

  • We now have, on average, the second-highest statutory corporate tax rate (including state corporate taxes) at 39 percent, compared with an average rate of 31 percent for our top competitors - the nations that form the Organization for Economic Co-operation and Development (OECD). 
  • Ireland, for example, has engineered its own economic miracle, in large part due to a reform program that cut corporate tax rates to a level one-third that of the United States.
  • Germany will reduce its total rate from 38 percent to 30 percent in 2008; France, Japan and the United Kingdom have signaled they may also lower their corporate rates.

The 1986 tax reform recognized that if there is a prescriptive role for business tax policy, it is to free companies to put capital to its best use. Instead of building on the proven success of these reforms, we have moved in the opposite direction, making the code more complex and costly, adding narrow provisions that create or respond to current headlines.

Maintaining our competitiveness in today's global environment requires us to think comprehensively and act prudently, says Paulson.  As Europe's biggest economies and developing nations around the world move to reduce corporate taxes and gain the benefits for their workers that U.S. workers already enjoy, now is an opportune time, when our economy is in a position of strength, to consider ways our business tax system can be improved.

Source: Henry M. Paulson, Jr., "Our Broken Corporate Tax Code," Wall Street Journal, July 19, 2007.

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