TREASURY DEPT. CONFERENCE HIGHLIGHTS NEED FOR CORPORATE TAX REFORM
November 5, 2007
The U.S. Treasury Department recently held a conference regarding the growing uncompetitiveness of the U.S. corporate tax system in response to a growing number of scholars and heads of large corporations that say the complex and high-rate corporate tax needs to be overhauled,
Among the themes discussed at the conference:
- The U.S. federal plus average state corporate tax rate stands at 40 percent, which is much higher than the European Union average of 24 percent.
- It appears foreign rates will keep falling, putting an ever-greater squeeze on U.S. competitiveness.
- There is a trend toward "territorial" corporate tax systems, with about two-thirds of countries having such systems today.
- A U.S.-style "worldwide" system is less and less popular because it puts home-country corporations at a disadvantage in global markets.
Several speakers also stressed that an increasing share of corporate value is in the form of intangible property such as patents. Intangible property is more mobile than tangible property, and thus easier to relocate to low-tax jurisdictions, says Chris Edwards, director of tax policy studies at the Cato Institute:
- Peter Merrill of PricewaterhouseCoopers noted higher capital mobility is causing a greater share of the U.S. corporate tax burden to fall on U.S. workers.
- Kevin Hassett of the American Enterprise Institute has shown statistically that higher corporate tax rates mean lower worker wages.
Supply-side economists have long pushed for tax breaks on new capital investments, says Edwards. But there was widespread agreement at the Treasury roundtable that getting the overall corporate tax rate down is more important than incentives such as investment tax credits. A lower corporate rate reduces all the distortions in the corporate tax code and directly responds to the challenges of growing global capital mobility.
Source: Chris Edwards, "Treasury Dept. Conference Highlights Need for Corporate Tax Reform," The Heartland Institute, November 1, 2007.
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