A TAXING SITUATION
September 21, 2007
A comparison of the industrialized world's corporate tax rates show America losing its advantage by simply standing still, says J.T. Young, a former Department of Treasury and Office of Management and Budget official.
- Just 20 years ago, America's 34 percent top corporate tax rate was far below the Organization for Economic Co-operation and Development's (OECD) 44 percent average.
- By the mid-1990s, the average OECD rate was below the U.S. corporate rate and has continued to decline.
- Today, America taxes corporate profits at a top rate of 35 percent, compared to the OECD industrialized nation average of 31 percent.
- Only Japan's 40 percent rate is higher, and its prolonged economic doldrums show why the U.S.' rate is cause for concern.
Unfortunately, the result of America's earlier economic hegemony (and tax advantage) was the creation of a twofold fiction, says Young:
- The first misperception assumes America's global competitive advantage as a birthright -- the mistaken belief that our businesses could shoulder any burden and remain competitive.
- The second mistake is the false equation of corporations to "the wealthy" and that the wealthy can be taxed through them.
- In fact, corporations don't pay taxes; they pass them on to their employees, their customers and their shareholders -- most of whom are hardly wealthy.
Additionally, the government has forgotten its role in fostering economic success, says Young. Today, the appeal is in promoting the Big Idea, being the catalyst of a specific breakthrough. But government cannot and should not attempt to pick economic winners. It should only seek to create the conditions for winning -- creating the conditions for success, not the success itself. This is done through low taxes that minimize economic distortions in investment decision-making.
Source: J.T. Young, "America Can No Longer Stand Pat As Corporate Taxes Fall Elsewhere," Investor's Business Daily, September 18, 2007.
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